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

Wednesday, May 20, 2009

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

Today one of my position (MCD) was hit hard by a large move up.

This topic has probably been discussed before, but what's the best implied vol condition to enter iron condor's?

Below is something I found online. Do any of you concur?

Start Finish Comment
Low volatility Low volatility Okay
Low volatility High volatility Danger!
High volatility High volatility Okay
High volatility Low volatility Nice!

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?

Thanks!

Carmelo

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