They couldn't be more wrong.
Choose to enter the market when it is ideal, not indulge in it anytime you want.
This book taught me to look out for ways to effectively profits from Iron Condor, and to exit the market as soon as possible, and wait for another entry to set up the Iron Condor.
A great book. I would be referring to it as much as possible.
Author-- Michael Hanania Benklifa
Time Decay - Theta
Effect of a chance in price of underlying security - Delta
Acceleration - Gamma
Volatility - Vega
Acceleration - Gamma
Volatility - Vega
We are trading time.
ATM options decays differently than OTM
ATM options decays differently than OTM
ATM decay - Waterfall, it accelerates towards the end.
OTM decay- value drops dramatically then levels off closer to expiration (because no much value to lose near the end)
Because of OTM decay, we dont hold contracts till expiration.
OTM decay- value drops dramatically then levels off closer to expiration (because no much value to lose near the end)
Because of OTM decay, we dont hold contracts till expiration.
Dont wait till expiration. Exit as long as you have earned a decent % profit within a % length of the contract.
For example, 29% of total credit with 25% of the length of contract, 71% of total credit within 50% of length.
Out of Market means u are not exposed to market risk.
"Dont push your luck"
For example, 29% of total credit with 25% of the length of contract, 71% of total credit within 50% of length.
Out of Market means u are not exposed to market risk.
"Dont push your luck"
Volatility
IV divided by 16 times square root of number of days = how much the price will move for 1 Standard Deviation (68%)
IV divided by 16 times square root of number of days = how much the price will move for 1 Standard Deviation (68%)
Options are hedges, like puts bought to hedge against stocks portfolio hence buyers may overpaid for them, that is why IV higher than historical volatility (Volatility Gap)
Iron condors best on stocks with large number of strikes, reasonably high priced, high liquidity in OI & volume, price not dramatically affected by specific news.
Best- SPX, NDX, RUT, all European options (SPY is american option)
Best- SPX, NDX, RUT, all European options (SPY is american option)
Placing a Trade
Trade works best when it is set up as a reaction to the market.
Only time when u do not react to market conditions is when u first enter the trade.
You want an iron condor that is
(1) range bound (2) long enough (3) profits
Trade works best when it is set up as a reaction to the market.
Only time when u do not react to market conditions is when u first enter the trade.
You want an iron condor that is
(1) range bound (2) long enough (3) profits
1) Time
2) Position
3) Price
2) Position
3) Price
"Art of the Imperfect Trade" satisfy two of the three conditions is enough.
"Keep one third as profit"
"Keep one third as profit"
Sell when got spike in IV.
The day after expiration has many buyers jumping back, which dampens the price.
A month from expiration seems most favoured but it is too near for risk management.
A condor placed the friday before the previous month's expiration, for 5-6weeks for best. 7-8weeks is also good depending on situations.
The day after expiration has many buyers jumping back, which dampens the price.
A month from expiration seems most favoured but it is too near for risk management.
A condor placed the friday before the previous month's expiration, for 5-6weeks for best. 7-8weeks is also good depending on situations.
Keep a lookout for ViX spikes and if VIX prices break upper Bollinger Band.
VIX ATM puts & calls should be same price. If not, it is a hint of things to come.
Also if next month ATM prices are substantially higher than this month, it may indicates potential large drops in future.
VIX ATM puts & calls should be same price. If not, it is a hint of things to come.
Also if next month ATM prices are substantially higher than this month, it may indicates potential large drops in future.
Delta
Delta is not symmetrical, as prices fall far faster and steeper than they climb.
Strike at Delta 10 should be much further away on the put side than the call side.
Delta is not symmetrical, as prices fall far faster and steeper than they climb.
Strike at Delta 10 should be much further away on the put side than the call side.
Price
Evaluate credit as a percentage of total margin at risk. for example, credit of $1,000 as % of margin received of $10,000.
Do SPX at quarter step, 1950, 1975, 2000, as liquidity is greater there, which implies tighter bid-ask spread.
Easier to balance Deltas when short strikes at these quarter strikes, as SPX has tendency to gravitate to these prices because of greater liquidity in options, futures and ETFs-: trade with the institutions, not against them.
Evaluate credit as a percentage of total margin at risk. for example, credit of $1,000 as % of margin received of $10,000.
Do SPX at quarter step, 1950, 1975, 2000, as liquidity is greater there, which implies tighter bid-ask spread.
Easier to balance Deltas when short strikes at these quarter strikes, as SPX has tendency to gravitate to these prices because of greater liquidity in options, futures and ETFs-: trade with the institutions, not against them.
Every $0.25 credit received for selling a SPX iron condor is abt 1% return on margin.
Therefore $1 is 4%, $2 is 8%.
Plan in advance what price you received, and what price to close it, to get your % return.
Therefore $1 is 4%, $2 is 8%.
Plan in advance what price you received, and what price to close it, to get your % return.
Putting it together
Position- Delta 10 positions outside previous highs & lows. Charts not trending strongly in either directions.
Price: high credit of $5 (20% of margin) volatility, which has been trending nicely, just had a 1-day spike.
Time- expiration in 4-5weeks
Position- Delta 10 positions outside previous highs & lows. Charts not trending strongly in either directions.
Price: high credit of $5 (20% of margin) volatility, which has been trending nicely, just had a 1-day spike.
Time- expiration in 4-5weeks
You can only choose 2 out of 3, prioritize.
Price is your first consideration. You want to capture a portion of the credit, but not all. Keeping 1/3 or 1/4 is easier than waiting long enough to capture 1/2.
Then position is directed by price. If Delta 10s cannot provide the good price, you need to wait till it does (Volatility spike) or trade the farther out month. Position is NON-negotiable.
-->> Time is negotiable. Time is the only constant in trading condors. Keep a "reserve" of time in your trade so that you have time to make adjustments. It allows you when to remove or adjust your trade.
Price is your first consideration. You want to capture a portion of the credit, but not all. Keeping 1/3 or 1/4 is easier than waiting long enough to capture 1/2.
Then position is directed by price. If Delta 10s cannot provide the good price, you need to wait till it does (Volatility spike) or trade the farther out month. Position is NON-negotiable.
-->> Time is negotiable. Time is the only constant in trading condors. Keep a "reserve" of time in your trade so that you have time to make adjustments. It allows you when to remove or adjust your trade.
When enter a trade?
Trade out of opportunity (volatility), not out of necessity (time expiration).
Wait for a jump in VIX, it can be a percentage term relative to previous day.
Or as a break in the upper Bollinger Band on the VIX.
Or standard deviation in change in prices of VIX or S&P is greater than 2 SD
Trade out of opportunity (volatility), not out of necessity (time expiration).
Wait for a jump in VIX, it can be a percentage term relative to previous day.
Or as a break in the upper Bollinger Band on the VIX.
Or standard deviation in change in prices of VIX or S&P is greater than 2 SD
1) Get a min $3 credit or greater, which is 12% return on margin.
2) Delta shld be 10 or less, but never greater than 12.
3) Expiration day must be no closer than 49days, if volatility take a huge jump before day 42, consider it, but prefer to trade the month farther out.
4) Call short strikes shld be at least 100 to 125 points higher than current prices
Put short strikes shld be at least 125 points lower.
This cushion not just allow you to stay out of assignment, it allows you to adjust.
5) Trade when SPX is at quarter price.
6) Enter on a volatility spike day (a down day)
2) Delta shld be 10 or less, but never greater than 12.
3) Expiration day must be no closer than 49days, if volatility take a huge jump before day 42, consider it, but prefer to trade the month farther out.
4) Call short strikes shld be at least 100 to 125 points higher than current prices
Put short strikes shld be at least 125 points lower.
This cushion not just allow you to stay out of assignment, it allows you to adjust.
5) Trade when SPX is at quarter price.
6) Enter on a volatility spike day (a down day)
Sideway market - Take profit once achieve target, do not push your luck. Market do not stay sideway for too long
Uptrending mkt-
Up is good, but up too fast is not good.
Best to wait until a down move in mkt.
Reminder that volatility is up when market goes down, but not up when market goes up.
In uptrending, leave room for market to go higher. Lean on quarter prices to enter. Wait for market to finish 1 leg up to quarter price, if it can't and fall to lower quarter price, use as reference. Preference is still to enter on a down day, with spikes in volatility
IV ought to be higher than HV.
Up is good, but up too fast is not good.
Best to wait until a down move in mkt.
Reminder that volatility is up when market goes down, but not up when market goes up.
In uptrending, leave room for market to go higher. Lean on quarter prices to enter. Wait for market to finish 1 leg up to quarter price, if it can't and fall to lower quarter price, use as reference. Preference is still to enter on a down day, with spikes in volatility
IV ought to be higher than HV.
Exit is key to profit.
Exit strategy that works best is to give back almost all credit. Profits of 3% in a few days is considered good.
Don't stay through expiration as Gamma may burn u. When u exit u r now a buyer and choices may be against u.
Don't stay through expiration as Gamma may burn u. When u exit u r now a buyer and choices may be against u.
Exit profits- good to set GTC profit exit price immediately after enter. Place order before market opens if its in your favour, to take advantage of amateur hour.
Exit time- close expiration a month before expiration, to have a wider defensive. If you staying because market moves against you, rapid time decay is your ally.
Close 2-4weeks after entering.
Exit P&L Curve- take profit without hesitation. Disappointment in less profit is better than disappointment in losses.
Exit Capital- preserve capital. If lose money, exit at break even. Lots of small gains and an occasional loss is key to success.
Exit time- close expiration a month before expiration, to have a wider defensive. If you staying because market moves against you, rapid time decay is your ally.
Close 2-4weeks after entering.
Exit P&L Curve- take profit without hesitation. Disappointment in less profit is better than disappointment in losses.
Exit Capital- preserve capital. If lose money, exit at break even. Lots of small gains and an occasional loss is key to success.
Can sell condors 2-3 days before holidays and long weekends.
Buy back to close right before the weekend, when Theta is discounted.
Prices decline abt midday on Friday or day prior to holiday, & drop quickly in final few minutes.
Buy back to close right before the weekend, when Theta is discounted.
Prices decline abt midday on Friday or day prior to holiday, & drop quickly in final few minutes.
Why not close after hols? Remember events during hols can ruin your positions too. Berlin wall.
Downtrend days
Good to setup due to spike in VIX.
First & last hours are unstable and strong reversals in 1st hour are not unusual. Can just take profit and run. Or enter at this point of great uncertainty, for the VIX
Good to setup due to spike in VIX.
First & last hours are unstable and strong reversals in 1st hour are not unusual. Can just take profit and run. Or enter at this point of great uncertainty, for the VIX
Sometimes VIX continue to climb after u enter, make ur positions in losses.
U close the side that is farther, open a newer, nearer one for extra credits.
Can use credits to shift other side.
Can exit the trade too in a small loss or break even to open a new one another time.
U close the side that is farther, open a newer, nearer one for extra credits.
Can use credits to shift other side.
Can exit the trade too in a small loss or break even to open a new one another time.
Warning, if SPX reach 50 points near to 1 of your side, better adjust.
Another sign is when delta is more than 30.
A good trade
1) Making sure condor was large
2) trading at quarter strikes
3) selling 10 delta
4) making sure the initial credit was high
5) making proper adjustments to condor to protect principal
Adjustment rules
1) easier to adjust in a down market as you get more credits for rolling down the call credit spreads
2) harder to adjust in an up market because you do not get much for rolling up the put credit spread and you bring the position closer to your downside risk
3) trade the math, don't let delta go over 25 to 30
4) when possible, adjust when the market is moving in the opposite direction intraday. Adjust the puts when the market rallies, or adjust the calls when the market dips.
5) trade only what is in front of you, and not what you or anybody else thinks that the market will do.
6) if you must speculate, assume worst-case, not the best-case scenario
7) if you must adjust, consider getting out at breakeven at the first chance available
8) you can always put in a new trade with better strikes
Manage your risk, take the loss, reduce your exposure when necessary.
Wing buyback only if you have a strong conviction that the market will reverse direction
Day Trade before Earnings Day
IV 1st month / IV 2nd month
IV May / IV June (for example)
If this Sort Value is more than 1, then there is a skew worth speculating.
Use the same principles to open iron condors, on the options that are going to expire soon.
Seek Deltas below 10, but you can afford to be more aggressive with the call sides.
Look to close the positions right at the 1st hour, take profits.
Look at the ATM calls, what is the price, add to the current price of stock, to know that is the expected price speculators expect the stock to rise to.
Same for ATM puts, but minus instead.
Trade with delta 10, get credits, quit on the day earnings or the NEWS are announced, immediately asap.
You may lose some trades, win most.
Most trades will win due to the shrinking of the volatility. However, keep your trade small as inevitable, some iron condor will fail.
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