Mitigate Risk - iron condor

Covered because risk is defined on both sides - if you are long the condor, your risk is what you paid for it. If you are short the condor, your risk is the width of strikes less the credit received.

 

You could mitigate risk via some type of delta hedging strategy for the condor. This of course is far more difficult in practice than it would seem; however, done right it can really enhance your trading.

 

Thanks can you provide an example?

 

In practice this is what happens: you sell 10 of the 85/90/110/115 condors in XYZ. Assume 90/110 are you 15 delta strikes. XYZ moves up to 115, your deltas move up to 30, you panic, you sell 200 shares of XYZ to delta hedge, 20 days later you take the trade off, XYZ is back down to 105, you make money on the condor, you lose money on your hedge.

The only time I delta hedge is when I have screwed up on an earnings play (NFLX most recently) and I am scrambling because I fear NFLX is going to 150 and I'm short the 105 calls.

 

I am unable to purchase stocks in the positions my options are in bc i trade in a risk level that is way beyond the amount of capital needed to cover the position.

 

:eek:

 

Equal to the GDPs of several 3rd world countries combined.

 

jonny1lot-
Just because that is what happens in practice with you does not mean that's how it is for others.

EliteTraderNYC-
You can delta hedge with other options. In fact this is better anyway since you can neutralize or at least manage higher moment "greeks" (ie vega) with it. This is a complex topic though. I don't recommend jumping in head first in your live trading. There's a ton of literature out there though. Also, there are some good threads on here where you can pick up bits and pieces from some guys that really know what they're doing.

 

So if I understand correctly, you are underwater on a short condor and don't have enough capital to recover the position?

My only guess would be to see if you can roll the untested strike up to the tested strike to increase the credit received (create a short iron fly), see if you can also roll out that position to add duration, and hope it comes back to you and see if you can scratch.

I hope that helps. Condors are tough to play defense in - at least with a strangle you can go inverted and keep rolling until you are right.

 

Good point, you are right.