Iron Condor on NFLX

Discussion in 'Options' started by bc1, Jan 13, 2012.

  1. bc1

    bc1

    Hello everyone. Something, I don't know what, has caused Netflix to run through my 92.5/95 bear call spread leg of the iron condor I have on with the Jan 2nd weekly which expires today. I'm not sure what is driving the rise with the market down but I'm going to close it out as it may be up to far to retrace as it is at 95.5 now.

    Anyway, I'm wondering if there is another way to trade this rise. I could do a bear call credit spread on the 97.5/100 to pick up some premium and cut my losses. However I've never done debit spreads and am wondering if there is a debit spread opportunity here and how it works.

    Thanks. Guess I'll watch this thread for a little while to see if there are any responses before I close the one and buy another.
     
  2. Assuming fair pricing, same strike/expiry bearish spreads provide the same return. Doesn't matter whether they're for a credit or a debit. For example, buying the 95c/100c vert is the same as selling the 100p/95p. In either case you make the same if over 100 at expiry.

    FWIW, there's a class action suit pending against WMT and NFLX charging that NFLX agreed not to sell videos and in return, WMT agreed not to rent them. I doubt that a judgement would affect WMT but NFLX could be another story.
     
  3. daveyc

    daveyc

    its difficult to adjust weeklies. a iron condor on a stock like nflx is just too risky to start. maybe try adding extra longs and start the trade as ratio spreads.
     
  4. bc1

    bc1

    Thanks guys. Got it Spindro, being an opposite then I can't combine a debit spread with a credit spread in an iron condor and use the same buying power. I can't go long with any naked calls either as I don't have the buying power to do it. I suspect now that maybe nflx had some short sellers get hit with a margin call or else they were covering their short on the Jan 2 weekly.

    I'm out of 5 contracts of 92.5/95 in one account at 1.96 as that account allowed me some margin to close even though I didn't have the buying power. I didn't think you could margin trade in an IRA but TDA is letting me. My other account with 4 contracts and no buying power and no margin were closed out at 1.70 with the broker forcing the close and it got a better deal as the price dropped below 95.

    It is at 94.30 now but we have a long weekend ahead with MLK day keeping monday market closed so there will be plenty of people trying to consolidate positions before the long weekend. All of which would mean that netflix probably won't close below the 92.5.

    Guess I'll watch now and either take the afternoon off or consider closing some other positions if the right trades pop up for week 2.
     
  5. You could use all credit spreads or all debit spreads or both in an iron condor but it wouldn't make sense since you'd incur more slippage and coomissions and possibly assigment if/when near parity.

    The margin is the same on equivalent vertical spreads. For the bullish call spread, the margin is the debit cost. For the bullish put spread, it's the difference in strikes less the prmium received. On paper, they're the same. IRL, slightly different due to other pricing factors (IV, B/A width, IV, div's, etc.)

    As for NFLX rising, porice rise means more buying than selling. In the absence of news, someone has and opinion :)
     
  6. once at the long strike the adjustment time has passed. the only option is to close or roll out to the next period/month. 'Should prob be comfortable with the next trade on its own merit though.
     
  7. bc1

    bc1

    Yeah, I concur. Time to take a lump and look to next week and focus on those trades.

    What really bugs me is all those snake oil medicine seminar sellers, like Coval and others, who preach snake oil medicine about rolling out and adjusting trades till they are profitable. Fact of the matter is that closing a trade is closing a trade whether you do it by itself or combine it with a new trade on a rollout. Typical of these last minute rollouts is that they are in panic mode and don't do the proper research and evaluation on the new rolled trade and proper strikes which ends it just making it a bigger loser down the road. I've seen where snake oil salesman like Coval will lose a trade and then leave an entry next to it for months stating it is awaiting reentry. Rentry for what I wonder? That is how he can claim he has 122 winners and 4 losers in a charity account when trying to lure the naive to his website to take their money. He will play a bunch of trades out for months until he can finally get the credits above the debits and quits. Then it gets added to his winning column and he brags about how smart and great of a trader he is because of these adjustments.
     
  8. daveyc

    daveyc

    i reiterate my previous post and starting out a trade with a back ratio design and not using weeklies. but, next time if you the stock moves against your short call, roll up the puts closer to the money and do a butterfly roll of the calls. so if you are short at 92.5, buy the shorts back and sell 2x 95 and buy 97.5. the calls are much easier to adjust than puts.

    i am no fan of iron condors or any credit spread trade because i know of the failure rate. its a miserable way to trade, i know. if you are in a pm account, you will have more options and your goal in the options trading world is to have a pm account or it should be. again, don't use the weeklies unless this is just vegas money and if it is well, then just take a vacation instead, at least you'll get something for your hard earned money. just being honest and hope your trades work next time. this is not an easy business. good luck.

    dave c