Friday, December 18, 2009

Re: [TheOptionClub.com] Iron Condors ...3 fold question....?

 

James:

Thanks for the detailed answers. So you recommend the 30 day Iron Condors? with adjustments as needed?

How about a 2 month Iron Condor....closing in 30 days? I'm trying to effectively bring in a higher credit with a wider break even for safety. How about selling the 20 delta on a 60 day...as opposed to a 10 delta on a 30 day?

Or..do you recommend a strategy that I could try?

Thanks,
Joules

--- In OptionClub@yahoogroups.com, James Fink <jimfink@...> wrote:
>
> 1. If you plan on closing 3-month iron condors after only one month, those "wider breakevens" you calculate are meaningless because you will be buying back a significant portion of the premium you initially took in.
>
> 2. Iron condors are traditionally thought of as market neutral trades. You don't know which way the market is going so you take in the double credit as protection against directional movement. If you leg into an iron condor, you are betting on market direction and assuming more risk because you are initially taking in only one-half of the credit. Consequently, legging in makes the trade completely different.
>
> 3. Short iron condors are vega negative. Out-of-the-money Options that are closer to at-the-money gain more value from an increase in implied volatility than further out-of-the-money options. This is because closer to ATM options have a greater likelihood of moving in-the-money from an increase in IV. Consequently, if you are short the closer to ATM options (which is the definition of a short iron condor), you make money when IV falls. This is the exact opposite of a long calendar. Thus, you want to trade short iron condors when IV is high and expected to fall and you want to trade long calendars when IV is low and expected to rise or high and expected not to fall. In both cases, however, you want the underlying not to move much. Intuitively, a lack of movement in the underlying only occurs when IV is expected to fall so iron condors make more sense to me than calendars as a market neutral trade.
>
>
>
>
>
>
> ________________________________
> From: jouless360 <jouless360@...>
> To: OptionClub@yahoogroups.com
> Sent: Thu, December 17, 2009 9:53:58 PM
> Subject: [TheOptionClub.com] Iron Condors ...3 fold question....?
>
>
> Option Club Members:
>
> I have a 3 part question on Iron Condors. I am relatively new at this and the Condor does have an appeal of safety, even though you have to put up more risk capital to get decent returns. Here are a few questions:
>
> 1. I noticed I can get wider breakevens if I go out 3 months..ie to March 10 on the RUT or SPX. I was wondering if I go out that far...can I close them in 30 days with the idea that the theta decay will be enough to make a decent return. I know the theta kicks in better the last 30 days but I cant seem to get a decent return with wider breakevens for the risk in a 30 day condor.
>
> 2. I have seen benefit in legging in to Iron Condors ..by selling the Vertical Call portion on a nice upday...and selling the Vertical PUT portion on a nice down day. This could bring in a better credits and allowing for wider breakevens. Is this a reasonable strategy..or do you prefer to sell the entire Iron Condor at the same time?
>
> 3. Can I sell Iron Condors without worrying about the volatility charts..or is this strategy affected more adversely with the vols as opposed to a Calendar trade?
>
> I thank all of you in advance for your expertise and thoughts on this subject.
>
> Happy Holidays!
> Joules
>

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