setting up a skewed IC

D

devilfishlane

I've been trading Iron Condors in the SPX for a while now. I'm trying to tweak my entries. What do you'll think about the following:

for example: 10 1150
10 1160 Call

10 940
10 950 Put


I would put it on 30 days out with the S and P at 1125 (only 25 points to my short strike on the Call and 85 points on the Put side)

I would also at the same time buy a call or 2 at 1160 same month. I would set it up this way to take advantage of the cheap calls (insurance) that are 1/3 of the price of puts(Insurance) and leave the put side with no insurance since its 85 points from my 1 st strike

Any comments would be appreciated
 
Buying insurance kickers for your option position is a total waste of money unless the underlying moves toward your short strikes :)
 
Would you rather be naked?

Quote from spindr0:

Buying insurance kickers for your option position is a total waste of money unless the underlying moves toward your short strikes :)
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If I have to risk say $7500 to make $2500 (if held to exp.) I could spend $300 or $400, while the calls are cheap , to save my ass before a sharp move up. Why would you not recommend it?

Spin -- Come on....I've read alot of your stuff on options on here share some of your knowledge with us new guys about this
 
Devilfish, I understand what you are trying to do. However, the skew that you have in your IC is quite substantial. I suggest a much reduced skew, but using some insurance. Your premium earned for the puts will be minimal, and won't help much if the market moves upward. 25 points upward can happen pretty quickly ( it happened one day last week), and can lose a lot if the short strike is breached, and have significant paper losses even if it moves 15 points toward the short strike before expiry. On top of that, you will often have to roll your puts up dramatically in order to capture enough premium to support rolling your calls further upward and out of danger.

I have used insurance spreads to protect my position, and I am using them now. In fact, strangely enough, after the May 6 market debacle I reacted swiftly and in a little panic, and my insurance spreads have now kicked in for May, June, and July as a result. This has been a very good thing and prevented serious losses which would have resulted otherwise.

Mark Wolfinger suggests insurance spreads which are closer to the money as well as something he calls a kite-- check out his website for more details. I also use spreads that are closer to the money. The one great advantage is that you have a much better chance of getting a nice payoff occasionally that will really help your portfolio of IC`s to flourish. Insurance spreads that are way OTM will expire worthless and give very little protection 95% of the time.
 
Quote from devilfishlane:

]If I have to risk say $7500 to make $2500 (if held to exp.) I could spend $300 or $400, while the calls are cheap , to save my ass before a sharp move up. Why would you not recommend it?
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I thought the smiley face was a tip off to the incongruity of my statement but I guess that it was just too subtle. Like all insurance, it's a waste of money if you don't need it but a life savior if you do.

Your IC and many other posted strategies on ET are dependent on one's ability to get timing annd direction right as well as manage the position (adjust/close) if the UL misbehaves. It's all a juggling act and how well you juggle the balls is the key not how big they are :)
 
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