Three questions regarding selling iron condors

[tommcginnis]

forget that this is an options strategy -do the simple maths. Your reward is say 15,your risk 35( a 50 point wide spread). You win the first 4 trades but lose the next 2. Got it? R/R does not often work for ICs these days,and desperation will make you chase rubbish premiums

It's an iron condor, not a concrete condor.

Your expectancy description implies you are glued in place.
That's not real life.

The components of an iron condor (from matched-width verticals down to the individual legs) are all and each individually tradeable.
If that's not easy or efficient for you at your broker, don't blame the iron condor.

 

[qlai]

I found this little book very practical, for a nub like me at least. Many real life examples with actual prices at the time. Examples of trades taken at different volatility levels and unexpected vol spikes. There are many options experts here so if it's bogus I hope they will chime in.

 

[BrooksRimes]

You need to decide on what your entry and exit rules (or tentative) rules are for your IC trading and then backtest them with historical data, either with a backtesting product like Optionvue or www.optionstack.com or with software from your broker if they supply it. A bare minimum of 30 trades (hundreds is better) and test in all market conditions (bull, bear, flat). Adjust your rules based on the results. With ICs you are selling time. Trades lasting 3 or 4 days do not return enough premium to justify the risk. And as Kim wrote, trading during expiration week is a bad idea due to gamma. Some IC traders place new trades on a periodic basis (weekly, monthly) regardless of FA or TA.

 

[El OchoCinco]

THe problem is getting married to the strategy and simply placing iron condors on week in and week out. WHen I was doing them I would often just do credit spreads and end up legging into an IC but I was never fixated in opening one on a regular time interval without any consideration of what was going on in the market or vols. Many books preach them like weekly ATM machine strats and it just does not work like that. The biggest part of credit spreads is the research before putting on one and guys who push putting on fixed ICs every week or interval or forcing you in often at bad times.

 

[BrooksRimes]

I think I agree with ElOchoCinco. I used to do ICs but found the call side didn't pay much, especially considering the risk. So now I trade put credit spreads. I do them week in and week out and it does work (for me) over the long haul. But, your mileage may vary ...

 

[qlai]

So now I trade put credit spreads. I

Isn't this because we've been in a "buy the dip" mode for 10 years? So you are timing the market while the point of IC is to not have to?

 

[BrooksRimes]

I trade every week, dip or no dip. I've traded ICs in the past. After trading them and backtesting ICs vs. put credit spreads, I found that the call component of the IC was not worthwhile. Maybe other traders have a different view/opinion.

 

[qlai]

I found that the call component of the IC was not worthwhile.

Just to be clear ... I'm not arguing with you ... just trying to learn. Wouldn't your back test also show that it's not worthwhile to even buy the protective leg (or at lease keep it as far away as possible)?

 

[tommcginnis]

I trade every week, dip or no dip. I've traded ICs in the past. After trading them and backtesting ICs vs. put credit spreads, I found that the call component of the IC was not worthwhile. Maybe other traders have a different view/opinion.

That's the skew slapping you around.
And so it's a market-dependent thing -- and some days will just SUCK.
But, if you can go out in time, and find a call spread worth your while? Likely you will find a fine put spread on the other side, giving you that second (if desired) use of already-margined capital. ("Yayyyyyy!" )

FWIW, skew is not only visible in immediate spread prices, but also in their decay --
S&P call spreads decay most around 2-3 weeks out, while put spreads decay relatively little from 2-5 weeks out, while decaying ferociously 1-2 weeks out. That sort of imbalance can make strick ICs look like a real PITA.

 

[rwnomad]

The earlier referenced book is a pretty good tool to learn about trading Iron Condors. There are definite conditions when the trade works best. You can make decent money with the strategy as long as you never take any max losses( by using a stop loss on the trade). It gets way harder as you move the DTE in short like the OP proposes, and I would not start there.