I have traded iron condors and other multilegged creatures for quite a while now, so I'll comment on a few items: 1) There is considerable debate about whether it should be called "buying" or "selling". The reason, of course, is that you buy a call and sell another call at a lower strike closer to the money, and you also sell a put and buy one at a lower strike further away from the ATM strike. You buy two options and you sell two options, so are you buying or selling? I prefer to use the term "open" an Iron Condor instead and everyone will also assume these are opened for a net credit and closed for a debit which everyone trading them hopes will be less than the credit, but may not always. 2) Iron Condors will trigger four sided commissions. 3) The comment about subtracting the deltas from 1.00 to determine the approximate probability of expiring in the money is more or less accurate and accurate enough for most trading purposes. 4) Unfortunately, the probability of success may be fairly high, but the magnitude of the losses when they occur will be much greater unless mitigated by astute trading, protective positions designed to reduce these losses or both. I recommend that potential traders try out a few paper strategies for a year or two before plunging into this. Both 2008 and 2010 had interesting events which made life pretty interesting (and in a not so good way) for pure and simplistic iron condor traders.
nfamousyoungest, Thanks for the link to the ET topic on OptionCoaches journal trades. I have been reading it all day! Up to like pg 40. The posts answer a lot of my questions and have generated more, which I will post when I am finished reading!
wood thanks for the info on TOS apread hacker I will check it out. John thanks for the info on some of the above. I put in a paper trade today just to test it out. I put in one for SPX and set for the mid of the a little lower then the mid of the b\a. The thing I noticed right that I didn't like is that it is difficult tracking daily gain loss when the bid ask is so skewed. Thanks, droid
droid, The SPX is really good for those with more capital. Usually in real life you can split the bid-ask minus 5-10 cents for a vertical spread. For those starting out, the SPY is much smaller and the bid ask spreads are fairly small. Start with the SPY, and when you are doing 20 spreads, you can migrate to the SPX with 2 spreads. The major difference will be in commissions in the real world.
Read Optioncoach's "SPX Credit Spread Trader" and you'll find that Coach Phil no longer trades ICs or credit spreads.
funny you said that. I read it for 2 whole days straight, I didn't realize it had 40K plus posts and stopped after a few hundred! I have also read his book "The Option Trader Handbook" and didn't know it was his book till later in the posts. Lots of good information though, in both the posts and the book. I didn't get to where he stopped. Did the strat eventually turn bad? I am curious bc I am reading a recent thread on another board. Strat very similar and I am wondering if OC's method worked for a long while and then BAM destroyed? droid
Very good and honest reply You make a lot in 2009, but when take into account 2008 & 2010, you virtually loss. It is even worst if you are using so called active trade (aka "active adjustment") approach. As I always mentioned, a pure (with some dynamic adjustment) IC is a complete loser in long run (do your back test and homework).
Hi galvinlee888, Are you suggestion that you should just stick to pure ICs instead of attempting dynamic adjustments? Only attempt these ICs when the market is favorable for that type of strategy? Thanks, droid
What is a pure IC with some dynamic adjustment? I have a problem with dogma like "a strategy is a complete loser in the long run." Option strategies involve some degree of timing and direction. You have to adapt to current circumstances. When the market was collapsing in '08 and coming back hard in '09, it was obvious that non-directional strategies were unsuitable and short/long was the place to be. Different things work at different times... and then there's one's ability/or lack thereof to react, adjust, cut losses.
The problem is no one has the crystal ball to tell "when" is the favorable market, for example, the current VIX is around 16, in theory, it is the worst time for IC, however, you can always argue that the low VIX mean the market will most likely stays side way and it is a good time to do IC.