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What's wrong with Iron Condors
- Thread starter jb514
- Start date
Read some of this thread to get the arguments against trading credit spreads and Iron Condors.
I've got a dog in this hunt because I do trade credit spreads. However, those against it insist that in the long term there is no positive expectation. Even if 80% of the trades are successful, you will be wiped out in the long run likely in one black swan moment.
Eudaemon claims that he has a proof, but will not share it publicly and only privately to a selected few. So far, he has not shown it to me.
I've got a dog in this hunt because I do trade credit spreads. However, those against it insist that in the long term there is no positive expectation. Even if 80% of the trades are successful, you will be wiped out in the long run likely in one black swan moment.
Eudaemon claims that he has a proof, but will not share it publicly and only privately to a selected few. So far, he has not shown it to me.
Quote from HowardCohodas:
Read some of this thread to get the arguments against trading credit spreads and Iron Condors.
I've got a dog in this hunt because I do trade credit spreads. However, those against it insist that in the long term there is no positive expectation. Even if 80% of the trades are successful, you will be wiped out in the long run likely in one black swan moment.
Eudaemon claims that he has a proof, but will not share it publicly and only privately to a selected few. So far, he has not shown it to me.
I've read a lot of that thread and I feel like you made some fundamental errors. The most prevalent argument against, is them being ruined by a black swan. I can't really find a good reason to suggest that the strategy is inherently negative expectation.
What does Eudaemon have proof of?
I'm interested on your take of what my errors were. Kindly elaborate.Quote from jb514:
I've read a lot of that thread and I feel like you made some fundamental errors. The most prevalent argument against, is them being ruined by a black swan. I can't really find a good reason to suggest that the strategy is inherently negative expectation.
What does Eudaemon have proof of?
Regarding eudaemon's contention, ET does not provide a way to link to a specific post. The best I can do is give you the time stamp for his post in my thread: 05-04-11 09:17 AM, where he states
and in a subsequent postIt can be proved mathematically based on historical data of market behaviour going back hundreds of years, in any timeframe (intraday timeframes to monthlies) I may add.
I haven't published my proof and do not intend to. You can prove it to yourself in a couple of days with some knowledge of statistics and probability, although several PhD's have almost kissed my hand in the past for showing it to them.
The structure is of no consequence, iron condor, butterfly, straddles, whatever. The problem is people slapping them on with no forecast on direction or vola and no plans to adjust until shit hits the fan, and thinking there is some inherent edge in short premium.
No one wants rookies thinking they can all of a sudden manage their money because they realized they can earn theta decay and not have to go outright long/short. Except for the brokers and option MM's buying those otm puts someone decided to sell for a couple cents.
Have you ever read the literature on the option selling websites, geared to old guys going into retirement, come spend a couple hundred (thousand?) on some seminars and we'll *really* show you how it's done. If someone really wanted to they could read a couple days/weeks in the option forum archive here on ET and they could learn all they wanted about condors and other structures without spending a dime or gas to get there.
No one wants rookies thinking they can all of a sudden manage their money because they realized they can earn theta decay and not have to go outright long/short. Except for the brokers and option MM's buying those otm puts someone decided to sell for a couple cents.
Have you ever read the literature on the option selling websites, geared to old guys going into retirement, come spend a couple hundred (thousand?) on some seminars and we'll *really* show you how it's done. If someone really wanted to they could read a couple days/weeks in the option forum archive here on ET and they could learn all they wanted about condors and other structures without spending a dime or gas to get there.
Nothing wrong with them. It is just a matter of using the right method for the right market conditions. And right now... the market is good to use them.
Don't listen to the "negative expectation," "no edge" garbage talk. It is all about price action, and return on cash, with these things.
Good link that explains the flaw in assuming that these things always have negative expectancy. They don't:
http://www.greenfaucet.com/EDUCATION/OPTION-SPREADS-AND-POSITIVE-EXPECTANCY/72297
There are other good web sites out there that post their trades. Look at those and compare to others. It is pretty obvious who has their stuff together with these things and who doesn't.
Don't listen to the "negative expectation," "no edge" garbage talk. It is all about price action, and return on cash, with these things.
Good link that explains the flaw in assuming that these things always have negative expectancy. They don't:
http://www.greenfaucet.com/EDUCATION/OPTION-SPREADS-AND-POSITIVE-EXPECTANCY/72297
There are other good web sites out there that post their trades. Look at those and compare to others. It is pretty obvious who has their stuff together with these things and who doesn't.
So he's is saying he has proof that trading credit spreads will eventually blow up in your face? I doubt that's provable. Every credit spread has an opposite credit spread that offers the same risk/reward disregarding arbitrage opportunities. If they offer the same risk reward, they cannot be inherently negative expectation.
Quote from Magic8:
http://www.greenfaucet.com/EDUCATION/OPTION-SPREADS-AND-POSITIVE-EXPECTANCY/72297
There are other good web sites out there that post their trades. Look at those and compare to others. It is pretty obvious who has their stuff together with these things and who doesn't. [/B]
That is a good link. Where are you finding sites that post their trades?
My one issue is that it appears vertical spreads profit from decline in options prices. If that is true doesn't that make credit and debit spreads cannot profit from low volatility. Although if they cannot profit from low volatility, that goes against my previous post, which I am completely sure is true.
Quote from jb514:
That is a good link. Where are you finding sites that post their trades?
My one issue is that it appears vertical spreads profit from decline in options prices. If that is true doesn't that make credit and debit spreads cannot profit from low volatility. Although if they cannot profit from low volatility, that goes against my previous post, which I am completely sure is true.
The web sites are all over the internet... I won't endorse any of them here. I have mentioned them before though, in prior posts.
You profit from credit spreads by the passage of time/evaporation of option value - that you sold. Like spoiled milk. You want to be the one who sold it, not bought it.
Volatility... when you have big swings, up and and down... volatility increases, option values increase... which you can argue is good to sell those pricey options; however, if it is too volatile, then you don't want anything to do with this approach because both your short and long positions could be breached, resulting in maximum loss - IF you hold the trade to expiration. No one with any sense should ever do that (roll to the next month for cyring out loud - on the put side).
You want a sideways market, with a slight bias up/down, low to moderate volatility on the underlying. Look at using indexes, like the RUT. Offers diversification, plus is a little more volatile than SPX, SPY. The call side, however, on the RUT has been a bitch over the past months and months. Whereas staying on the put side has been like shooting fish in a barrel.
As long as the price of the underlying does not penetrate your short option, at expiration, you're good. Some months are better than others. In a low vol month, you don't make as much. High vol months, you get more. Gamma, delta-neutral, yadda, yadda... it's price action.