OEX spreads

[johnk49]

I know some of you fellas do Condors etc.,on the OEX XEO.My question is how do you make any money out of it?I've just been looking at the premiums for the various strikes and there is hardly anything there!In fact some of the further out strikes are more expensive at the ask than the nearer the money bid(especially the XEO)!!



Is it actually worth the bother??

 

[Hello_Dollars]

Quote from johnk49:

I know some of you fellas do Condors etc.,on the OEX XEO.My question is how do you make any money out of it?I've just been looking at the premiums for the various strikes and there is hardly anything there!In fact some of the further out strikes are more expensive at the ask than the nearer the money bid(especially the XEO)!!



Is it actually worth the bother??

Short answer -- No.

Unfortunately, you're 100% correct. Iron condors on the XEO used to be among my core positions, and I had consistent success with them until December of last year. But as vol cratered, so did premiums, and I was forced to take on a lot more gamma risk to generate the same potential reward.

Finally, after getting stung one time too many in January, I decided it was no longer worth it and retired the strat for good in favor of a number of other strategies that are far better suited to the current environment. And none involve the XEO. Liquidity is anemic and the specialist is a pig.

Now if the VIX ever gets back over 30, I may revisit the strategy. But for now, XEO IC's, rest in peace.

 

[BlueHorseshoe]

Quote from Hello_Dollars:

Short answer -- No.

Unfortunately, you're 100% correct. Iron condors on the XEO used to be among my core positions, and I had consistent success with them until December of last year. But as vol cratered, so did premiums, and I was forced to take on a lot more gamma risk to generate the same potential reward.

Finally, after getting stung one time too many in January, I decided it was no longer worth it and retired the strat for good in favor of a number of other strategies that are far better suited to the current environment. And none involve the XEO. Liquidity is anemic and the specialist is a pig.

Now if the VIX ever gets back over 30, I may revisit the strategy. But for now, XEO IC's, rest in peace.

Yes, every strategy has its season. Like Dollars I hadn't put a condor on since about November. But ... with the recent volatility I do have a small OEX April condor on. I began by selling the call spread a few weeks ago, with no real intent to trade the puts unless an opportunity presented itself. Last several days ... wallah ... we got the put side of the condor. But I only placed it because of recent market action and wouldn't suggest that this is a good environment to try and make a living with these.

 

[Hello_Dollars]

Quote from BlueHorseshoe:

Yes, every strategy has its season. Like Dollars I hadn't put a condor on since about November. But ... with the recent volatility I do have a small OEX April condor on. I began by selling the call spread a few weeks ago, with no real intent to trade the puts unless an opportunity presented itself. Last several days ... wallah ... we got the put side of the condor. But I only placed it because of recent market action and wouldn't suggest that this is a good environment to try and make a living with these.

Well done, Blue. Yes, the OEX has better liquidity and slightly better premiums than the XEO. But you have the assignment risk. Plus, the same overall issues that have created a less favorable risk:reward situation apply to both. However, as Blue has shown, there may still be XEO/OEX condor trading opportunities that arise from time to time if one is nimble. It's just not the consistent money-maker it once was and there may now be better ways to skin the cat.

 

[vega]

Just out of curiousity, are you guys executing your order electronically, or the old fashioned way calling a broker ?

I don't want to beat a dead horse here, but as I mentioned in other threads about the SPX, you can get MUCH tighter spreads using a traditional floor broker.

Just my two cents, good trading to all.

Vega

 

[Hello_Dollars]

Quote from vega:

Just out of curiousity, are you guys executing your order electronically, or the old fashioned way calling a broker ?

I don't want to beat a dead horse here, but as I mentioned in other threads about the SPX, you can get MUCH tighter spreads using a traditional floor broker.

Just my two cents, good trading to all.

Vega

Vega, I've used both, and always split the spread. So I agree that one can and should do better than the bid-ask. However, that doesn't change the underlying problem with doing condors on the indices with vol at these levels. Again, you simply have to take on too much gamma risk for my tastes to generate a reasonable risk:reward profile. For example, a year ago, I could easily put these on with my short strikes well beyond the 1-sigma point, creating a comfortable margin for error. Now, for a similar credit, I couldn't come close to that.

Also, I don't know whether it was a function of my increasing size or what, but I was having more and more difficulty the end of last year/beginning of this year getting filled on my XEO spreads, even with my brokers actively working the orders. In fact, I began to suspect that riggor mortis had beset the specialist, but no one had noticed, mistaking his unfortunate condition for unbending devotion to the CBOE. Alas, I finally gave up in favor of more lively contracts.

 

[BlueHorseshoe]

Just one other point on Condors in the current environment.

IMO voliatility/premiums are quite low yet I see extreme event risk on both sides due to Terrorism, OBL capture, inflation risk, an elevated & thus vulnerable market.

This combination is, IMO, an ideal BLOWOUT scenario for a portfolio dedicated to condors right now.

Thus, I'm not trading 'em now but will cherry pick small credit spreads when opportunities knock. In the example I cited earlier in the thread, I simply cherry picked both sides of the condor ... but never set out looking for 'em per se.