Sunday, December 20, 2009

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

 

Joules  To add to what Chris has said, my experience with 90 day Condors is that they don't really decay much until the last 30 days so you are holding them (risk) without getting the full benefit of theta decay.
----- Original Message -----
Sent: Saturday, December 19, 2009 6:09 PM
Subject: [TheOptionClub.com] Re: Iron Condors ...3 fold question....?

 

Joules,

1.  The wider expiration break evens you find with a 3 month iron condor reflect the fact that those options were sold three months prior to expiration instead of, say, 30 days away.  While the spread is wider, you must also stay in it longer to achieve the potential of the expiration risk graph.  There is always a trade-off between risk and reward, so don't fool yourself about the notion you can sell 3 month condors and have better probabilities than selling 1 month condors.  Having said that, also understand that selling 30 days condors is not "better" than selling 3 month condors.  Whether you make money over the long term has much more to do with your risk management and your discipline than it does with the width of a spread.

2.  Legging into an iron condor can be beneficial IF you're able to sell the spreads at opportune times.  Unless you are comfortable timing the market fluctuations, I would not suggest legging into an iron condor.  In my experience, this tactic works best if you think of yourself as a vertical credit spread trader who sometimes finds that they are trading both sides of the market.  In other words, the goal would not be to trade an iron condor but it would simply be a happy coincidence when you find yourself in one.

3.  You really should be aware of what is going on with implied volatility because it will effect your spread.  Not paying attention to implied volatility as an option trade is sort of like a pilot who does not pay attention to altitude.   Probabilities, standard deviation, etc., are all dependent upon implied volatility and if vols rise after you put your trade on it will diminish your probability of success and effect your profitability.  Calendar spreads are very sensitive to changes in implied volatility.

Christopher Smith
TheOptionClub.com


--- In OptionClub@yahoogroups.com, "jouless360" <jouless360@...> wrote:
>
> 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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