Iron Condors ? how many should we have

Discussion in 'Options' started by silver217, Apr 19, 2011.

  1. Please share your thoughts on this:

    An IB account has 10.000 $ in cash.

    Strategy is to buy Iron Condors.

    This Iron Condor:

    buy 1 RUT put june 720 @ 5.60
    sell 1 RUT put june 730 @ 6.50
    sell 1 RUT put june 920 1.10
    buy 1 RUT put june 930 @ 0.70

    date 18-april-2011, 60 days to expiration.
    RUT closed at 821.84, RVX at 21.32

    margin = 1000 minus credit received: 130 , plus commission 2.95.
    The maximum number of Condors that can be bought is 11.
    What is a safe number ?

    The Flash Crash in may 2010: RUT went down about 10% and
    RVX up about 40%. Using these percentages on this Iron Condor
    would result in about 500$ loss.

    When we buy 7 Condors, we would still have a margin of 3889
    and we can survive a 500 dollar loss per condor.

    IB will not liquidate positions at a large loss, and hopefully
    by expiration the RUT has recovered.
  2. MTE


    A safe number would be zero. More than that and it's no longer safe.

    A prudent number would be 1 or 2, which would mean that in a worst-case scenario you are risking 8.7% or 17.4%, respectively.
  3. Your choice of shorts are identical to mine. You are in one index (RUT) and in one time frame (JUN 11). This is definitely not my comfort zone. If you trade the IC as a unit, then your cash reserve is not required to implement an exit.

    You did not specify your management or exit strategy. Your analysis of the result of a flash crash scenario depends on the assumed number of days to expiration. If you hold the IC until expiration, your risk goes up as the days to expiration grows shorter. A $500 loss on spreads of $10 is 50% excluding credit received. That is also beyond my comfort zone.

    Bottom line, the decision of how many to trade is one of many decisions to analyze in an IC risk profile. And much depends on your personal risk tolerance. For me, I just would not be in this trade all by itself.
  4. stoic


    This does not look like an Iron Condor to me. Looks more like an Long Put Condor. Long Put Condors will result in a debit, (unless legged).

    Why is the 930 put less than the 920 put.
  5. sorry, a typo: the 920 is sold @ 1.10 , the 930 bought @ 0.70

    it's an Iron Condor, two credit spreads.
  6. Looks like a typo or C&P error if you check the prices.
  7. the 920/930 is a call spread of course.
  8. Howard,

    What is wrong with this trade ?

    days to expiration = 60
    short distance = -11% , 12%
    sigma -1.4, +1.2
    R/R ratio 14.9%
  9. There is nothing wrong with the trade. I am in a nearly identical one, except I chose $20 strike difference. My comments were directed at this trade in isolation. I'll try to explain.

    I trade credit spreads exclusively. Forming Iron Condors is an artifact of opening the companion spread. I allocate my resources into seven buckets. They are made up of two indexes (NDX, RUT) plus three time frames (weeklies, near month and the month after near month) plus a cash reserve. This reduces the possibility I will encounter a wipe-out as a consequence of large moves in the underlying.
  10. I am in more than just this Condor. I don't like weeklies and I don't see
    the advantage of trading NDX plus RUT, is highly correlated I think.

    Question is how big is the cash reserve to avoid a wipe-out.

    Also I have very OTM puts for protection, but thats another subject.
    #10     Apr 19, 2011