Same vehicle, Same Strategy, every month

[MTE]

Quote from GatlingGun:

Hi Mayhem,

I spent some time evaluating IC spread strategies in terms of how they respond to increases in volatility and the impact of volatility on profits... honestly, I'm not sold... especially in a market as wild as this... ICs are rather expensive, complicated and the gains are highly dependent on whether you can time volatility the correct direction... I guess the key word here is "time"... see below for connection.

Quite frankly, the cynical part of me wonders whether those pushing ICs these days tend to be the ones who profit from selling them (either on the brokerage or educational side)... Have you compared profits from a typical year-long series of ICs and the volatility risks vs taking a short / long position (with a generous stop or option hedge) based on broad market timing & momentum indicators?

ThinkorSwim has an option spread calculator that I used to run the numbers... even small increases in volatility (assume I bought @ vol=22 and sold @ vol=24) completely wiped out most of the profits I could get from ICs... buying ICs at higher volatility and shooting for a lower volatility exit seemed to significantly increase front-end costs.

Thoughts?

I agree that and iron condor is very commission intensive, but it offers a way to be short vega and long theta without the unlimited risk exposure of a straddle/strangle. Is it the holy grail? Of course not! It is just a strategy that has its place and time.

By the way, you only mention volatility, but it's not the only thing that affects an iron condor. You also have time decay that works in your favor, and as I have mentioned in a post above, changes in volatility only impact mark-to-market, if you hold to expiry then the only thing that matters is that the realized volatility lower than the one you sold at.

 

[mayhem28]

Quote from GatlingGun:

Hi Mayhem,

I spent some time evaluating IC spread strategies in terms of how they respond to increases in volatility and the impact of volatility on profits... honestly, I'm not sold... especially in a market as wild as this... ICs are rather expensive, complicated and the gains are highly dependent on whether you can time volatility the correct direction... I guess the key word here is "time"... see below for connection.

Quite frankly, the cynical part of me wonders whether those pushing ICs these days tend to be the ones who profit from selling them (either on the brokerage or educational side)... Have you compared profits from a typical year-long series of ICs and the volatility risks vs taking a short / long position (with a generous stop or option hedge) based on broad market timing & momentum indicators?

ThinkorSwim has an option spread calculator that I used to run the numbers... even small increases in volatility (assume I bought @ vol=22 and sold @ vol=24) completely wiped out most of the profits I could get from ICs... buying ICs at higher volatility and shooting for a lower volatility exit seemed to significantly increase front-end costs.

Thoughts?

Hey Gait,

Yeah you raise some valid points. I think IC's can still be profitable even if vols go up as long as it isn't a huge move up as the trade would just need more time for theta to do it's bit. If I put on an IC 2-3 months out and vol's go down a fair bit, then I can take off (usually the put side) pretty early on in the game. If vol's go down too fast then obviously the sold call strike could be in danger as the market might be floating up too quick.