Hi Mte, You sure on that its a short and not a long Iron condor? According to the bible of Options strategies (by Cohen) he states that its a long iron condor, BUT I have found some mistakes in his book with some other strategies. Cheers SAA
A short iron condor is short the body and long the wings. The "short" comes from the fact that you are net short premium. An equivalent position (synthetic) would be a long call condor, which uses only calls (buy 1 call, sell 2 higher strike calls, and buy 1 yet higher strike call). The same can be constructed using only puts. In this case, the "long" comes from the fact that you're net long premium.
You might consider changing "bibles"...I've found that "Options as a Strategic Investment" by Lawrence G McMillan to be very through in explaining the various strategies. His definitions are the accepted definitions in the industry. He also suggests when is best to use the various strategies ex...bullish/low vol...bearish/high vol. There is a workbook for the 1st 25 chapters which is an excellent accompaniment. This is perhaps the best book for a beginner to take on, but be sure and follow it up with Natenberg's "Option Pricing and Volatility" (not sure of the title) BTW MTE is a great resourse as well
Richard, Thanks for that. I have both books on order! Just waiting for Santa to deliver those still. My background is a very technical one, (Cisco Engineer) so I like to be 100% sure. In this case I'm still not sure. Please correct here me folks if wrong. Long Iron Condor = Bull put spread + Bear call Spread. Overall credit position. Short Iron Condor = Bull Call Spread + Bear Put spread. Overall Debit position Clarifications on this would be great. Cheers SAA
A lot of people would disagree. Do a search on long condor and check out the results. I'm not saying I know definitively that you're wrong but I've always thought it was short body and long wings (same as butterfly) for delta neutral short volatility spreads (long condor, long butterfly, etc...). Short would then imply long volatility...
As I said, a short iron condor is equivalent to a long call (put) condor. The same goes for butterlies. If it's a call (put) butterfly then a long butterfly is short the middle strike, cause you would pay a debit for such position... A short vertical + a short vertical = long condor!? Doesn't make sense. The long/short refers to whether you're buying or selling a spread. So if you're selling a condor then it's a short one, and if you're buying it then it's a long one. The same applies to verticals like bull call/put and bear call/put.
Thanks everyone for clarifying the mistake in this book. I'll send an email to the publisher to let them know. It can happen. Better not rely on this bible too much I think! Fantastic result and thank you for explaining it, why it doesn't make sense either!
He calls it neutral because it is a neutral strategy but NOT neutral in risk. You trade that strategy when you are neutral on that equity or index. I have done it 1000 times. 990 of them worked and 10 of them wiped the profit of that 990 ones!!
With all due respect, I still have doubt in that comment. If you have a good money management, you can be profitable in Option while not being good in trading stocks. I am not even sure on what I believe but my point is that I am not buying your statement. At least I have strong doubt on that.
If you dont mind me asking, given your experience as a trader. What caused those 10 losses to you? Its a real pitty you had so many wins, yet those few losses wiped you out! SAA