Trading Iron Condors

K

Kpetrey

I'm fairly new to trading IC'S and have a few questions.

1 - If I have $300 - 400 dollars left in the premium and my strikes are far from being hit, do you recommend I still buy back the IC's right before expiration week? (I'm trading the RUT ans SPX). When would you take the full premium and let the IC expire worthless?

2. When is the best time to put on a IC in RUT or SPX, in reference to the market being in a rally up or going down?

3. I usually trade 10 point strikes (Paper trade), but do some of you all trade 5 points apart and do you recommend it for a newbie?

4. If when buying back one side of my IC and my price is down to .15 or .20 , why is it difficult to buy it back sometimes?


Thanks for you time
 
1. It depends on the intial premium. I generally look to get out if I can lock in 80-90% of the max profit. I also try to get out a few days prior to expiration as you lose (opportunity loss) more in decay in the next month than what you gain in the expiring month.

2. No best time. Generally you don't want to put on an IC in the morning only to find yourself at the short strike at the close (I trade closer to the money strikes).

3. I trade 10-point ICs.

4. It depends on the market quotes at the time. If the mid point is 0.2 and you are trying to buy it at 0.2 then it's not likely to get filled. Also, since you are papertrading you have to take into account that the fills cannot be realistic.
 
The way I see it is if you have a 10pt spread and its worth .20c. You are risking 980(minus other premiums) to make 20. Its not worth the extra 20 to me, so i just take the spread off.
 
I traded Iron Condors early on and found that without "legging into" the spread, the risk to reward was just not that appealing. Once I realized that I was spending the bulk of my effort trying to use directional insights to better my price I took as step back and just went with straight directional trading.

I am not saying that this position is a bad one, just pay attention to how much you are using directional trading to be profitable.
 
1) There is no magic cookie cutter one size fits all answer in trading. If the underlying is diddling around, your options are well OTM and your premium is decaying, why would you make a hasty exit? I'm assuming that your $300 to $400 of remaining premium is from a small position rather than 30 to 80 condors each with a nickel or dime of premium remaining.

2) The best time to put a neutral position on is when the underlying is "neutralling". In strong trending markets you want to be more directional.

3) The strikes involved in your positions depends on your ability to identify the trend and manage the risk (easier said than done). If your short strikes are being hit, 5 wide is better. If not, 10 wide is better. You have to fit the position to your ability/risk tolerance.

4) When I paper traded, all transactions took place at the bid and ask. There was no splitting of the B/A. In addition, there was often a small delay b/t when the bid or ask hitting my limit price and execution. Sometimes, price moved away w/o a fill because of that delay. Paper trading is good for learning your broker's platform but it's not truly reflective of real trading (psychology, fills, money management, etc.)
 
I am guessing that you are talking about this cycle.

1) Why? If you are sure that you are probably not going to be hit then forget it. In fact you are going to head slapped right now. If your option has no bid then the ask is going to be something outrageous. And the question becomes can you even get a bid on the buy?

2) I don't know since I don't trade an iron condor. My positions might look like an iron condor at the end, but I leg in multiple steps to get the most premium.

3) It all depends on the margins you get. Me for the most part I don't trade spreads and stick to naked positions. Though on the NDX I will put on spreads since the NQ requires way too many contracts.

4) Probably because the bid has no bid. Hence to unwind the price you need to jump the vol smile and as such you get jumped on. My suggestion is to get away from looking at the end prices and look at the raw underlyings.

Quote from Kpetrey:

I'm fairly new to trading IC'S and have a few questions.

1 - If I have $300 - 400 dollars left in the premium and my strikes are far from being hit, do you recommend I still buy back the IC's right before expiration week? (I'm trading the RUT ans SPX). When would you take the full premium and let the IC expire worthless?

2. When is the best time to put on a IC in RUT or SPX, in reference to the market being in a rally up or going down?

3. I usually trade 10 point strikes (Paper trade), but do some of you all trade 5 points apart and do you recommend it for a newbie?

4. If when buying back one side of my IC and my price is down to .15 or .20 , why is it difficult to buy it back sometimes?


Thanks for you time
More...
 
Quote from Kpetrey:

If I have $300 - 400 dollars left in the premium ...
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This is meaingless number.

Did you collect $500 for the oiginal trade? Did you collec$20,000?

It makes a diffrence.

Here's a good answer for you: Look at it as a new position. How would feel about opning a new iron condor that's equivalent to the one you on now?

If you would be pleased to get that $350, then do not close.
If the thouht of collecting so little feel ridiulous, then there is no reason to hold.

Except for commission costs, not closing is exatly the same as opening You either want this position, or you don't.

Mark
 
Thanks for the replies. Can someone explain what to look for and how one would "leg in" to an IC as opposed to putting the whole IC on at once?

Dagnyt

For example this is one of my IC's ( PL/Open , PL/day)

$2175 $1050





100 Nov.09 660 Call .125

100 Nov. 09 670 Call .10

100 Nov.09 570 Put .70

100Nov.09 560 Put .475


Since my strikes were far from getting hit, I held for 1 more day and made an additional $1050. But this is papertrading of course. The RUT is at 602

Also, wouldn't it be better to put on an IC when the market is dropping? When it drops, volatility is up, the premiums are better , and one gets a wider "runway"so to speak, between the strikes.

Thank you
 
Quote from Kpetrey:

Thanks for the replies. Can someone explain what to look for and how one would "leg in" to an IC as opposed to putting the whole IC on at once?

Thank you
More...

I would say that if you need to ask this question you are not ready to leg in to iron condors.

Please don't get me wrong, legging in requires good market timing skills (at which point you have to ask yourself why then even bother with ICs) and good discipline. I'd say that for a beginner it is best to put it on all at once.
 
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