Alternate GIS trade: GIS has an SSF so that an alternate trade would be: Buy the SSF at 66.70, sell the Jan 2010 65 call for 3.20 and buy the Jan 2010 60 put for .60 ............P/L 55.....(410) 60.....(410) 65.......90 70.......90 ------------------------------ req:1074 Yield: 90/1074 = 8.3% in 79 days or 38% annualized One could reasonably omit the put and get a higher yield for the higher risk.
"What's the point of selling an iron condor with 450 days to expiration!? Time decay is virtually zero for the next 400 days" Try computing other expirations and you will see the point.
Without going thru the numbers my guess would be that the premium is too low, and hence your reason for going that far out. Still what's the point of entering a trade and essentially not getting compensated for the next 400 days? Personally I would go front or second month with a narrower range. Anyway, I just wanted to hear your thoughts, if you don't feel like expressing them, that's fine by me. Good luck with the trade!
Why complicate things with a futures contract? It's a simple long call vertical, just buy the 60 call and sell the 65 call to achieve the same thing.
GIS:Buy the Jan 2010 60 call and sell the Jan 2010 65 call for a net debit of 400: ............P/L 55......(400) 60......(400) 65......100 70......100 ----------------------------- req: 400 Yield: 25% in 79 days or 113% annualized. A superior trade. Thank you very much. An even better trade: Sell the Jan 2010 65 put and buy the Jan 2010 60 put for a net credit of 120: ..........P/L 55.....(380) 60.....(380) 65......120 70......120 ------------------------ req: 380 Yield: 31% or 144% annualized. (i'm just so bored with running these put spreads) Still, for a super conservative trade (the one with the lowest probability of failure) I prefer the original Iron Condor.
Erratum: In the Iron Condor post the line: "sell the Jan 2011 45 put and 80 call and hedge with the 50 put and 85 call for a net of $45." Should read: "sell the Jan 2011 45 put and 80 call and hedge with the 40 put and 85 call for a net of $45."
Double check your calculations. Bull spreads do not increase in percentage yield across the board as time lengthens.
As you noted, there is no time decay payoff for quite some time in a 400 day iron condor, particularly when the net credit received is $45. Chasing small premiums and ignoring time risk is reincarnated monkey business.
"Double check your calculations. Bull spreads do not increase in percentage yield across the board as time lengthens." Apparently sometimes they do. As of close last night the time profile for the 26/28 spread is: Month..........%..........days.............Annualized Nov............2.56%.......23..................41% Dec...........17.65%.......51................126% Mar...........33.3%.......142.................85% Jun...........48.15%.....233.................75% So that if I were opening that trade today on the same criteria I would chose the Dec expiration.
"Chasing small premiums and ignoring time risk is reincarnated monkey business." I am not sure what 'reincarnated monkey business' is supposed to mean (i suspect it doesn't actually mean anything) but the issue is expectation of return. If one is making small bets with high probability of return one can do as well or better than making bigger bets with smaller probability of return. The issue is not the time so much as the statistical expectation which is function of both time and price. The time risk in a longer term option position is certainly no greater than that involved in buying the stock and in most cases is considerably less. Just a sugeston for all of you monday morning quarterbacks: if you have better trades why don't you post them on your own thread? I hear lots of criticism...but no trades. Just for your info: I don't particularly post these trades for anyone but myself. I use the postings to follow my trades as I move about during the trading day. I use them to remiind myself of what I am trading and why. So your approval or disapproval, until I see some evidence that you can do better, are of little interest to me. Get your own life...or in this case your own thread.