A good index option strategy?

Discussion in 'Options' started by deltastrike, Mar 18, 2011.

  1. I've been testing a strategy in my papermoney account for the past few months. Basically I've been selling iron condor weeklys on spx, ndx, rut and oex (mostly rut & spx) and I've managed to double my account value in about three months. Do the ET's around here think it's possible to do this with real money? Or is the papermoney/real money reality divide too great?
  2. Double your money in paper account in three months is a great achievement ( I believe a lot of "senior" trader here still can't make it:) )

    The only problem is the past three months the market is favor IC, slightly bull and always revert to mean.

    A year like 2008 is a tough ride and if you can make money (or even break even) with IC will be a true great achievement
  3. Forgive me, I'm relatively new and I don't know all of the lingo, what does "IC" mean? Index C...?
  4. When will you feel confident enough to trade it with "real" money? :confused:
  5. Probably in about three more months. I want to keep testing this strategy and see if I hit any interesting obstacles.
  6. During the first half of '07, the SPX was bumping along in the same fashion as the previous two years. But in the 2nd half of '07, the average daily change about doubled as volatility came back to the party. The news was getting rougher and downside momentum was building as things started going to hell in a hand basket. At some point one had to recognize that a neutral strategy wasn't a bright idea.

    I was holding long in '07 and from Aug-Oct I had slow but steady drawdowns as I held onto positions, trying mitigate losses by trading from the short side. By Novmber, the light bulb went on and I went to cash and just traded from the short side. It took me a month to recover the drawdowns but after that it was gravy. I may be slow but I'm not stupid :)

    So while it's 100% true that making money or breaking even in 2008 with IC's would be a great achievement, I think it's a bit of a fool's errand to try to stay neutral in that sort of market.
  7. It depends. If you rode through drawdowns on paper that you never would have tolerated IRL, not likely.

    You've solved 1/2 of the equation, at least on paper. You've made nice gains. But can you hold onto it? I'd suggest that you simulate some situations where the underlying threatens your short strikes and evolve an exit/adjustment plan (the other 1/2 of the equation called money management).
  8. Delta,

    Interesting question/idea.

    I have a couple of questions for you if you don't mind:

    1. Have you just been waiting until options expiry to close the options, or have you been more aggressive in managing the trades (i.e. stop loss, rolling options, etc.). Also, have you used any TA to "guess" the next week's market direction, or have you just placed the ICs in the middle?

    2. This week the markets fell off quite a bit, especially before the last 2 days - did you lose money (on paper) this week? Were the losses looking bad on Wed for example? What has been the largest loss in the 3 months?

    3. How much of the account value have you been putting to each trade - for example if the paper account is say 50K, have you been putting 20 or 30K into each trade (max risk/margin), or smaller amounts such as 5K/10K?


  9. 1. I've been riding the options out until expiration. My only real TA is looking at the momentum, volatility, and seeing whether or not the market is overbought or oversold, and taking a position from there. I generally sell the IC's out of a certain range of the market, for the highest probable rate of success.

    2. I didn't lose any money last week. I sold my IC's particularly far out of the money due to the volatility. I haven't had any losses on this paper account. I have another paper account which takes riskier positions with some what the same strategy but a larger account value, I might lose $10k on week, but I can generally make that back in 3-4 weeks.

    3. This particular account started at $5k, and is at $10k+ now. In the beginning I was leveraging 50%+ of the account for the IC's, and the past few weeks have been closer to 90% (but split between more indexes). Scalability and loss management is going to be my next experiment.
  10. OK, thanks for the reply. I might try paper trading these for a bit as well and see what happens (I am usually quite cautious with Iron Condors, etc.).

    #10     Mar 21, 2011