Discussion in 'Options' started by Almanac, Oct 20, 2008.

  1. Almanac


    I've been trading Iron Condors on the SPY for over a year. Every month, 40 days before expiration, I sell contracts that are 15% OTM and then close them out 10 days prior to expiration.

    This strategy has been netting me a tidy profit until October. When the market tanked, I was well in the money. I rolled them into November, but I expect to fully lose there as well.

    I am always looking to learn. What can I do in the future to protect myself against such significant market moves?
  2. Always practice safe trading and use a condom for protection.

  3. Consider buying a tad more protection (ratio), either at the long strike of the condor or the next strike OTM. If the slippage isn't nasty, roll the profitable side in a bit closer as the IC moves against you... and possibly roll the other side further OTM, particularly if you have some time decay accumulated. Taking smaller losses isn't a bad thing. And never be afraid of closing down your IC position if it's moving against you, particularly after a year trading them profitably.
  4. Grinder



    Protection will reduce your IC credit. Is it worth it? Only you can decide. There is no ideal protection, you can test out different strategies with strikes, vols, using hoadleys to get an idea of a possible outcome.

    Hint: Think outside the square & immerse yourself in all the possibilities... straddles, Iron butterflys, albatross, peradactlys.

    The possibilities are endless.

    Keep thinking.
  5. Your overall strategy is sound. Closing positions before expiration is an excellent method for reducing the dangerous effects of negative gamma.

    I also endorse buying protection, and have written about that idea.

    But no strategy works all the time. And buying iron condors does not work well when the markets are volatile. Thus, I have two suggestions:

    1) Reduce your size as a method of cutting risk

    2) Play closer attention to risk and take the loss when the position makes you uncomfortable to hold.

    If you limit your losses, you will do very well over the long term. And please don't beat yourself up if you do take a loss and the market reverses. You simply cannot make money every month using this strategy.