How are you guys, I hope everyone is keeping safe! Have a novice question here. My short IC is about 1.5 STDEVs OTM on both wings. One wing just recently went into good profit and the other understandably got a bit more expensive. Overall the position is still profitable, but not by a lot yet. RSI/Stoch suggest a reversal. IV percentile is quite high and is trending down. So the question is - should I use the opportunity now to close the profitable wing, in order to lock in at least some profit? So basically turn the IC into a vertical spread with the other wing, and then work with the time decay, expected IV drop and time a reversal to close it later? Or is it not recommended? What would the gurus do? Many thanks!!!
[QUOTE="ValZ2020, post: 5071167, member: 518140" My short IC is about 1.5 STDEVs OTM[/QUOTE] What symbol? What expiration date? What strikes? Theta of each leg? 1.5 SD suggests that the short strikes are at about 7 Delta. That means they have a 90-95% probability of expiring OTM. A more meaningful answer to your question might be forthcoming if we knew some of the detail? Best J B
Hi JBuck and thanks a lot!!! It is TSLA, both wings (10 dollars wide) expiring May 15th, 2020. According to Thinkorswim probability of OTM of the short call right now is 82.5%, the short put is almost at 97% (the stock went up a bit since I sold the IC). Short call's delta currently is 0.2563, while the short put's is -0.0262. If I get this right, each short side loses ~ 0.02 more theta than the long side. If I get this right, for that I have to look at the theta of the short option and deduct the theta of the long option from it, right? The position right now is at about 12% profit overall, however the put wing itself has depreciated by more than 50%. How risky is to turn the IC into a bear call spread (lock in some profit by closing the bull put spread)? Are there better adjustments than that given the situation? This is my first iron condor in a paper account at Thinkorswim, so I apologize for the somewhat novice way of explaining this... Thanks again!
You could leg out of the IC by selling the Put spread of the IC and holding the Call spread until expiration. Or closing out the IC in its entirety. I normally do the latter. tastyworks has several studies they've done of closing out ICs. here's a link o one; https://www.tastytrade.com/tt/shows/market-measures/episodes/legging-out-of-iron-condors-07-20-2017 I recommend that you research the tastyworks' studies which have found that legging out Iron condors is a less successful management style relative to managing the whole trade for 50% of the credit received. I tend to agree. Best J B