Can someone explain something in TOS

Discussion in 'Options' started by Kpetrey, Nov 22, 2009.

  1. Kpetrey


    Did I put on the 1 st Iron Condor incorrectly? I think the -$1100 in P/L open ,should be a positive $1100. The 2nd and 3 rd ICs are correct.

    Thank you
  2. Kpetrey,
    In an Iron Condor, the higher put strike and the lower call strike are the sold ones. You will always receive a credit to begin with when you set up an Iron Condor properly and receive a fair price for it. Your first iron condor is not set up correctly.

    Also, I'd like to make a small recommendation. I believe that the strikes should be at least 10 points apart, and 15-25 is even better. There was an extensive discussion of this on the SPX credit trader thread, but my experience is that there are a couple of advantages to going a bit wider than 5 points. The bid-ask spreads on SPX are quite wide and going to a wider spread helps to obtain more credit per spread, lowering the commission costs somewhat. Note that I am not recommending that you increase the overall margin requirement, just saying that you should use fewer, but wider spreads. If you are looking at 5 point spreads, the difference between the natural (the price at which you can get a guaranteed fill at very unfavorable prices) is extremely high relative to the credit received. This means that under fast market conditions, you may have a favorable movement going your way, but have a miserable time finding the exits.
  3. MTE


    You bought the top Iron Condor rather than sold it (i.e. you bought the body and sold the wings). So you actually paid premium and you want the SPX to move to the wings.

    If you wanted to receive premium then you should've done the reverse - sell the body and buy the wings.
  4. Kpetrey


    Thank you for the replies. I'm a newbie and obviously papertrading. If I would had put the IC on correctly , would my (1100) loss , at that point, be a $1100 gain?