Hi All- I am new to options trading and in my enthusiasm placed a Iron Condor trade and am hoping someone can clarify a few things. 1. When closing an iron condor before expiration date, why would I be required to put additional margin? So, if I want to book losses early and close the entire trade its asking me to put up more in margin. Why? 2. I placed following trade: AAPL FebWk4 522.5/525 Put 562.5/565 Call AAPL is almost touching the short put of 525. Currently AAPL is at 525.25. With only 5 days left, what options do I have besides "hoping for best". 3. What happens if aapl does go a lot lower, or at least midway between the short and long put, can I be assigned for the short put. How would that work out in terms of mechanism and profit and loss. This is a huge learning curve, ofcourse for a buy and hold investor. The problem is that if I try to exit the entire trade or even try to roll the put spread out to lower price by same Febwk4, it asks for a huge margin that I cannot cover at the moment. I thought about buying a long put but unsure if its the best option. Hoping to get some guidance over the weekend so I know what to do by Monday. Thanks in advance for any words of wisdom. Res.
Closing any position will release margin. Don't just hope for the best. IC's become increasingly risky when you are closer to expiration. Probably, one of those wings will have no hedging value as it is.
Close the position in this order: Buy to close the short 525.00 put. Sell to close the long 522.50 put. Let the calls expire worthless. You require more margin if you try and close the long position first, which I assume you are attempting. Selling the 522.50 puts first will give you a naked short position with the 525.00 puts.
I just tried what you recommended. The order (putting sell first or buy ) doesn't seem to make a difference. I have attached the preview. You will notice I am trying to close the entire position. The credit spread has done well. I thought about rolling the put spread but it is asking for substantial margin too. What I am still confused about is that why am I required to put up additional margin above and beyond to close my trade early? I can understand risk profile may change if I roll and margin may be required but can' figure out why for closing the trade? Am I executing this correctly? Basically, no matter what I do whether roll the put spread, close the entire position or close the credit spread and let the put spread carry on .. it asks for substantially more margin. Even then, I am sort of unsure as to what can I do other than waiting for it turn tide (which I rather not). Thanks again!
Call your broker. They should be able to execute for you. Your margin should go down if you are closing the whole structure.
In the preview it looks as though you are simultaneously trying to close the position. The brokers algorithm probably still looks at the margin required to be short the 525.00 puts and 562.50 calls. Try entering only the Buy to close AAPL 525.00 Put order and see if you have the margin for that. Once that trade is completed then you can sell the 522.50 puts.
Are you short the underlying AAPL, then closing this condor could make the margin use go up, as the condor is protecting your short position.
So I tried various ways of entering the transaction but it continues to ask for more funds in margin to close the transaction. I think some posters have commented that closing position would release margin. The problem is here I cannot even close the position without putting even MORE margin. This is counter-intuitive so I wondered if I was doing something terribly wrong. (I will contact my broker next week) Now that the trade has gone awry, what sorts of adjustments are usual when put spread is breached other than outright exit? Really trying to learn from this as I have another iron condor set up which is going quite well for now.
The big lesson is MARGIN MARGIN MARGIN...your trading too big for your account. while commission costs do eat up profits and it seems to be better to put on 4 contracts...stick with ONE contract for now. As newwurld said call your broker and have them close the entire position. They should get you the best price possible. Iron condors are by definition...DEFINED risk plays. When you put it on you must accept that a full loss on one side is entirely possible and if you don't have the cash in your account to accept the full loss...don't put them on. Some people will roll the threatened side to another time period but it may or may not create a bigger loss down the road. Many good traders actually build IC by doing one side....when that shows a profit put on the other side. Another strat is to put it on and take it off when/if your get 50 percent or better. Generally selling IC's when the IV is higher than normal works much better than putting them on when the IV is lower than usual. Stay out of trouble by KNOWING the risk and how difficult it is to get out of a trade gone bad. Lesson learned on this. Just to add...there are no "always" successful adjustments on losing trades. You can adjust winning trades by taking partial profits and letting the rest run...but those losing trades.....most often "adjustments" create larger losses. It is safer, easier and far more profitable to build on winning trades.
I am learning the hard way, and you are right indeed. I should have stuck with lower contracts. As far as the margin is concerned, I didn't realize how large of a margin is realized for simply closing a position. Speaking of rolling the losing spread, I spoke to a trader friend who has tried: 1. Adding a butterfly (cheap to set. however, It is still range bound, isn't this what got the trader in trouble on first place? 2. Buying a long put if stock dives down breaching our mental barrier of "threat". I am finding that this can be pretty expensive. Alternatively, why not just get rid of the short put altogether and let the long put run, but that increases the margin significantly and an inefficent use of capital or throwing good money after another. Any other IC adjustment straetgies one can think of? I have focused primarily on put spread, ofcourse. Feel free to comment on credit side too. I plan to do this a bit more seriously than the cowboyish trade so eager to learn.