Option Trading Articles: Re: [TheOptionClub.com] Effect of IV on IC's

Saturday, May 23, 2009

Re: [TheOptionClub.com] Effect of IV on IC's

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@yahoogroups.com, James Fink <jimfink@...> wrote:
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> 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@...> wrote:
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> From: cguy444 <carmelo5791@...>
> Subject: [TheOptionClub.com] Effect of IV on IC's
> To: OptionClub@yahoogroups.com
> 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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