Mojo,
I believe Dan would still be in Iron Condors. In one of his older web lectures he showed the use of the RVX to determine the proper weighting of positions within the portfolio. Here is what I have from my notes.
RVX Over 27
3k - vega + theta (Verticals/Condors)
3k - vega + theta (Butterflies)
3k + vega + theta (Double Time Spreads/Double Diagonals/Time Spreads)
RVX 22-27
2.75k -vega + theta (vertical/Condors)
2.75k - vega + theta (Butterflies)
4.50k + vega + theta (Double Time Spreads/Double Diagonals/Time Spreads)
RVX Under 22
2.25k -vega + theta (vertical/Condors)
2.25k - vega + theta (Butterflies)
4.50k + vega + theta (Double Time Spreads/Double Diagonals/Time Spreads)
Make it a great day!
Cedric
On Wed, Sep 16, 2009 at 12:53 PM, Mojo <beeper212@yahoo.com > wrote:
Beautifully said Chris! The only thing I would add is that its unlikely that Dan would advocate selling iron condors in times of such low volatility. Remember this is a strategy of delta and vega.
All the best,
Mojo
From: clslaw <chris@theoptionclub.com >
To: OptionClub@yahoogroups.com
Sent: Wednesday, September 16, 2009 11:43:13 AM
Subject: [TheOptionClub.com] Re: Slow Death by Condor
--- In OptionClub@yahoogro ups.com, "drrobhansen" <robhansen5252@ ...>The thing to keep in mind about high probability iron condors is that
they have a horrible risk to reward ratio. That's the price for the
high probability nature of the spread.
You can use standard deviations, rely upon probabilities, apply all
forms of technical analysis, consult the bones, and pray over them, but
the nature of these birds is that they will hurt you if not managed.
For this reason it is critically important to have a very sober,
realistic trading plan in place that limits losses at a point where they
do not erase the gains from your successful trades. Taking a max loss
on a high probability iron condor is not permissible if you hope to
maintain long-term profitability.
If you know Dan Sheridan and have discussed iron condors with him, then
you have already heard this before, but the fact that you are holding a
probability iron condor just 3 days away from expiration while under
pressure by the market suggests that you have not learned the lesson he
tries to drill into his students. Your losses on a position cannot be
permitted to exceed much more than your average gain. Before a loss of
that size is reached, you need to adjust or close the position.
By allowing the market to trade within a half point of your short
option, you allowed yourself to go from being a trader managing his
positions to someone simply hoping that things work out in your favor.
Consequently, you have lost what we call a "positive expectancy" because
you are risking a maximum loss, or near maximum loss, to occur. Those
maximum losses will hurt you.
By the way, selling iron condors with .10 deltas does not change a
thing. You have a higher probability than selling .20 deltas, but you
also bring in less credit. You essentially accept an even rose risk to
reward ratio in return for a higher probability of the market remaining
between your strikes. While Dan Sheridan does teach these types of
trades, he also teaches lower probability variants. What's consistent
in that teaching is the emphasis upon strictly limiting losses.
Your September positions will work out one way or another, but I'd
encourage you to prospectively consider how you will avoid the big
losses in future months.
Christopher Smith
TheOptionClub. com
wrote:
>
> Anyone else out there being threatened? For Sep expiration, I have
three going in SPY with one of these already with a short call ITM and
one more close. The 105 calls had a delta of .18. I have one in XLE
which started with the short call having a delta of .15 and should have
been safe. It's less than .50 from hitting my short call. My last one
is in EFA which right now is the safest. The 56c had a .08 delta when I
opened it. My buddy Dan Sheridan advocates the high probability iron
condors having a short option delta in the .10 range. Looks like this
is the only way to sleep easy these days. Comments please.
>
> RFH
>
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