Corrections in red.
I don't really trade IC's but sometimes end up with ICs if I do two Verticals on the same underlying at different times during the month. But it seems to me that the effect of a high IV is the rate of premium decay close to expiration (in the last month). I've noticed that those stocks with high IVs seem to hold premium until very late during expiration week. So if you drew the decay curve for a low IV stock it would have a gradual drop off but those with high IV would stay flat for a long time and finally drop to zero maybe even in the last minutes before month's end. I am not a theorist, just an observed phenomenon.
If this is correct and you factor this into your thinking about holding IC's, you would not have to hold the lower IVs as long to get a good return as you would have to hold the high IV ICs.
To: optionclub@yahoogro
From: tom_batchelor@
Date: Sun, 24 May 2009 07:33:52 -0500
Subject: [Option_BWBs_
I don't really trade IC's but sometimes end up with ICs if I do two Verticals on the same underlying at different times during the month. But it seems to me that the effect of a high IC is the rate of premium decay close to expiration (in the last month). I've noticed that those stocks with high ICs seem to hold premium until very late during expiration week. So if you drew the decay curve for a low IV stock it would have a gradual drop off but those with high IV would stay flat for a long time and finally drop to zero maybe even in the last minutes before month's end. I am not a theorist, just an observed phenomenon.
If this is correct and you factor this into your thinking about holding IC's, you would not have to hold the lower ICs as long to get a good return as you would have to hold the high IV ICs.
To: OptionClub@yahoogro
From: robhansen5252@
Date: Sun, 24 May 2009 03:52:50 +0000
Subject: Re: [TheOptionClub.
James, I think the point is that with high volatility, when coupled with expiration week, the chances of the underlying exceeding the break-evens is too high. I've been having luck with calendars and double calendars when the volatility is in the lower 1/3 range to start. You don't seem to get hurt as much with calendars when price moves away, and I like the adjustments that are possible with the calendars. But if volatility gets back to crazy levels, I'll jump back to high probability IC's with the short option deltas in the middle to high teens. Just my opinion.
RFH
--- In OptionClub@yahoogro
>
> Iron condors make the most profit prior to expiration when you initiate them in high implied volatility and IV subsequently decreases.
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> Of course, at expiration they make the same profit regardless of IV, depending on where the underlying closes.
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> --- On Wed, 5/20/09, cguy444 <carmelo5791@
>
> From: cguy444 <carmelo5791@
> Subject: [TheOptionClub.
> To: OptionClub@yahoogro
> Date: Wednesday, May 20, 2009, 3:20 PM
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> Today one of my position (MCD) was hit hard by a large move up.
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> This topic has probably been discussed before, but what's the best implied vol condition to enter iron condor's?
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> Below is something I found online. Do any of you concur?
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> Start Finish Comment
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> Low volatility Low volatility Okay
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> Low volatility High volatility Danger!
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> High volatility High volatility Okay
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> High volatility Low volatility Nice!
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> The IC portfolio delta is negative so moves up typically affect the portfolio negatively. What's interesting is that the effect on the spread does not correlate similarly when the market moves up. Sometimes, the portfolio isn't affected greatly when the market moves up significantly, and sometime it is affected greatly. I believe this is because volatility is what's affecting the price, right?
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> Thanks!
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> Carmelo
>
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