Entering Iron Condor option with only 15 days before expiration

Discussion in 'Options' started by Squiggle, Jul 4, 2009.

  1. Squiggle


    Should I stay away from entering iron condors with only 10-14 days left.

    I can still find 60% probability trades and make 200%. The strike prices would need to be pretty tight to the current stock price to receive a decent credit.

    What are the pros and cons of this strategy?
  2. See above. Really no pros, unless you are a gambler and not a trader. You will see better results if you go further out, timewise--at least 4-5 weeks before expiration.
  3. It really depends what you are looking for... Right now you are looking at a 60% prob of a 200% payoff. That is not the strategy I use but in theory -assuming your prob is correct- you would come out on top if you repeat that trade over and over...

    To answer your basic question, yes one can do iron condors with short time remaining, I do it quite often although normally inside 5 days of expiration. When you do that, normally you would look for a small payoff with very high probability. Ex: 10% payoff with 95% prob... So I guess its a trading style preference rather than a definite no-way.

    You gotta ask, high prob/low payoff OR low prob/high payoff... Its a personnal thing ;)
  4. 1) Negative gamma increases as time to expiration decreases. Thus, if underlying runs against you, losses are significantly larger when trading near-term options than further-term options. That's the biggest risk.

    I'm not referring to the loss at expiration, but the loss when time remains.

    2) Obviously time decay is more rapid for near-term options. That represents your reward for taking the risk of negative gamma.

    You must be certain you understand and are willing to live with that risk and reward.

    3) I don't know how you calculate your possible profits, but you cannot make 200%.
    The cash at risk is the margin requirement, and your profit is not going to be twice that amount. On a 10-point IC, you must collect $6.67, risking only $3.33 to earn 200%. Perhaps you were referring to an annualized return?

    4) 60% probability ignores all those times that you close or adjust the trade prior to expiration. That 60% number is either an illusion or you never plan to adjust.

    It's your decision. There are pros and cons. I avoid these trades, but I'm more conservative than you are.

  5. Put just one on, work through it and get the feel. Repeat it
    for a number of expiring cycles. Different person has different
    styles and different talents. Trading is not a one size fits all thing.
    The real answer will come from inside yourself.