IC adjustments

This thread will serve the purpose of being a centralized depository for IC adjustments.

Primary focus will be SPX and RUT, although stock option discussion is also welcome.

Personally, prefer to steer clear of stock options due to high levels of idiosyncratic risk.

Also prefer to steer clear of index futures options (vs index options) due to higher costs.

 

What do you mean by IC?

 

I'm guessing by "IC", you are referring to Iron Condors? If so, please elaborate on the time frames you are focusing on? DTE of days, weeks, months, ...; Adjustments should be a function of your DTE, your commissions, your "rules", such as max loss, profit target, etc.

 

botpro?




IMO .......... Iron Condors (and most option trades) need no "adjustments". They are structured in away to provide all the risk control you need when you open the trade.

 

Surely you jest!
They are structured (without adjustments) to bleed you out slowly, if given an ample sample size. --
Expectancy is slightly negative due to commissions and slippage (this is ignoring fat tails which is more negative).

 

• You decided how the underlying will trade.
• Place the IC strikes outside of that range.
• Wait to expiry.
• Nothing more to do.
• Do not micro-manage the trade.
• Options are volatile - the line between a loss and profit is very narrow.

 

Ah! For it to be successful, your ability to identify "how the underlying will trade" must be accurate and more valid than the general market as reflected in the premiums!
I have not been able to demonstrate my ability to predict how an underlying will trade better than that of the general market, hence my prior response. Your step 1 is key for this to have positive expectancy. -- otherwise I agree with the other statements.

 

Some traders roll the untested side in order to pick up more premium.

 

• What does roll mean?
• Could you give an example?

 

He means buy back the spread which is turning profitable and sell another closer to the money. Say you put on an SPX IC with both short options at delta ~ 0.2, and SPX starts climbing. Now your put deltas are dropping, so some traders will buy back the put spread and sell another one (perhaps with a short delta of 0.2, if that's their "strategy").

Another option would be to roll the call spread further out because it is starting to get tested. Or both. Commissions add up.