"Best" way to enter into a condor

Discussion in 'Options' started by Pauluss, May 19, 2009.

  1. Pauluss

    Pauluss

    Hi Guys,

    I'll need some advices or at least inputs about how is the most efficient way to enter into a "conditional" condor

    Usually, do you enter the 4 legs into one trade? Or first a strangle (to get some theta) and transform one of the 2 part into a vertical spread with a conditional order? and when the market reverses, construct the other one?

    Maybe is it better (BP effect mgt) to enter a first vertical and then the second...in fact strangles are margin-consuming...

    I wondered what is an efficient way (I suppose that there are many but one will be already nice)

    Have a nice day,


    Paul
     
  2. 1) I find it most effective and simpler to enter the four-way as a single order.

    2) I am also willing to enter call or put spreads individually, but one must be careful not to let the order sit as the market makes a big move - or else there's little chance of getting the second spread filled at a decent price.

    3) Strangles are not margin intensive - if you buy your LONG strangle before selling the short strangle. But you don't want to do that on a day in which IV (as measured by VIX) is declining.

    Mark
    http://blog.mdwoptions.com/
     
  3. tman

    tman

    What product do you trade? Liquidity matters.
     
  4. I agree with Mark--I enter my iron condors all legs at once. I exit differently, though. I may exit by buying back the short call/put and selling the long call/put. I may just exit the shorts. Many times the long calls are "cabineted" rather quickly, so sometimes it is tough to get a buyer of the long calls. For me, the important thing, is to exit the shorts with an 80-90% profit.
     
  5. The most efficient way to enter into a condor is to enter the 4 legs into one trade. If you are comfortable with and disciplined in legging in, break the position into the respective component trades. In some cases there may be more than one way to break them apart. For example, an iron condor can be considered two verticals or two strangles. Set your price alerts and occasionally, you'll get a price break if someone over/under bids for a must have leg.
     
  6. Pauluss

    Pauluss

    I'm busy with IWM & SPY for the moment...good liquidity and not so high volatility.

    If I sum up, the nice to do is to enter all the condor in once but then, most important, is to manage the exit way.

    One sentence I do not understand (maybe due to my limited English) is: "Set your price alerts and occasionally, you'll get a price break if someone over/under bids for a must have leg."

    Can so explain?

    Anyway thanks all for your answers.


    Paul
     
  7. Suppose you want a 40/45/55/60 condor. Cost is -2.25 at the natural. You could place an order to buy it for say -2.00 (25 cts better) or you could set it up as combos:

    Two strangles:

    45p/55c is -4.00
    40p/60c is +1.75
    Net is -2.25

    Two verticals:

    40/45p is -1.15
    55/60c is -1.10
    Net is -2.25

    It's not unusual to see the price of one combo order to be 10-20 cts away from the sum of the natural B/A prices, particularly before earnings releases. If your platform allows for price alerts, set them on the above combos 10-20 cts in your favor. If you're legging in and you catch one of them, you can then work the other side. Obviously, if you get a fill on a strangle, you have to work the other strangle, not the verticals... and vice versa.

    It takes a bit of effort since you will have to periodically reset alerts as the underlying moves around but occasionally you can pick someone off and get a darn good fill.
     
  8. Pauluss

    Pauluss

    Ok, I get it, thx


    Paul