Commisions did kill, especially if you trade IC blindly - e.g. you trade IC routinely or mechanically each month without looking at the market context such as volatility. In long term you net P/L will be zero but you loss as you pay commission on top of those zero PL.
Why do people trade iron condors
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Commisions did kill, especially if you trade IC blindly - e.g. you trade IC routinely or mechanically each month without looking at the market context such as volatility. In long term you net P/L will be zero but you loss as you pay commission on top of those zero PL.
Say whattttt?
Okay, so, it's easy enough to agree with anyone being "trapped" in an iron condor == idiot.
And ToS has long offered discounts to those who bitch loud enough.
But IB offers discounts on volume?? Got a reference for that? Are we anywhere near retail??
(I had 200 $5 SPX spreads on for a couple of weeks last month, so I'm all ears.)
And people are *forced* into ICs?? By *margin requirements*?!?!? That needs some 'xplainin'.
The capital at risk for an IC is only the (width of the wing) X (contracts) X 100 and they're typically set at a high win probability. You'll notice that the probability adjusted annualized ROI is typically well above 100%, even in our current low IV environment.
The theoretical ROI for straddles is lower because the capital at risk (the denominator) is significantly higher.
Your point that when it fails, the insurance doesn't kick in is only true if you let it expire that way. Most IC traders will manage it so that doesn't happen. Of course that's especially true for straddles as well, and to your point, straddles could have better returns if actively managed.
ICs make up less than 10% of my plays but I know people who make their living exclusively from them. AT the end of the day, the strategies we choose are a reflection of who we are.
Anyone shorting straddles is shorting way less straddles vs ICs for the same comparative risk (but with a more healthy RR for straddles). Additionally, straddles are easier to control with the underlying (i.e. actual delta hedging) because you're not fighting the continual risk of gamma blowing up the trade and there are less contracts typically in play.
Trades that depend on "high probability" have high embedded risk. There is no free money.
I am interest in how you come out with 'above 100% ROI"?
If you are using some vendor options probability calculator to arrive to this number (100% ROI) , please provide the risk/reward, probability of success, cost (slippage + commission) in this particular trade.
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A very seldom-seen bit of wisdom.
ROI for options is almost a topic in itself
I calculate it myself and do include costs. Here's a sample.
The annualized ROI = net return/cap@risk * 365/10. The annualized ROI for the sample is 1277% because it's such a short term play on high IV options through earnings. Using max capital at risk is actually the most conservative way of representing ROI. I could've used delta capital at risk or broker required margin capital at risk for the denominator, which I calculate too for portfolio management purposes.
"Probability of success" is a another topic altogether based on what you believe for that trade. The probability could be based on Gaussian distribution (most brokers have this), a real time IV based distribution (Interactive Brokers has a cool beta of a new tool out), a TA based one (supports, Fibonacci, Bollinger, etc.) but for the above trade, it was obviously based on my subjective perspective of RL going into that particular earnings.
The checkbox in the image is where I typically put the probability of the trade for all-or-nothing defined risk /reward strategies, and I use Excel's bar length format until it books (then check mark). For open ended risk/reward strategies I use mark to market. All this tracking allows me to SUMIF and COUNTIF my way to evaluating strategies against each other over time. My average Iron Condor has made 14.7% returns over an average carry of 31.2 days, which is an annualized return of 172%. I'm relatively new to this so I actually expect these numbers will improve over time.
ROI for options is almost a topic in itself
I calculate it myself and do include costs. Here's a sample.
The annualized ROI = net return/cap@risk * 365/10. The annualized ROI for the sample is 1277% because it's such a short term play on high IV options through earnings. Using max capital at risk is actually the most conservative way of representing ROI. I could've used delta capital at risk or broker required margin capital at risk for the denominator, which I calculate too for portfolio management purposes.
"Probability of success" is a another topic altogether based on what you believe for that trade. The probability could be based on Gaussian distribution (most brokers have this), a real time IV based distribution (Interactive Brokers has a cool beta of a new tool out), a TA based one (supports, Fibonacci, Bollinger, etc.) but for the above trade, it was obviously based on my subjective perspective of RL going into that particular earnings.
The checkbox in the image is where I typically put the probability of the trade for all-or-nothing defined risk /reward strategies, and I use Excel's bar length format until it books (then check mark). For open ended risk/reward strategies I use mark to market. All this tracking allows me to SUMIF and COUNTIF my way to evaluating strategies against each other over time. My average Iron Condor has made 14.7% returns over an average carry of 31.2 days, which is an annualized return of 172%. I'm relatively new to this so I actually expect these numbers will improve over time.
Can't see the image you attach here, you want to PM me ?
Here's a few 1-wing condors where the put side isn't protected. You can see how the annualized ROI is affected by the duration and the naked put.