SPX Iron Condor

Discussion in 'Options' started by cantona777, Apr 8, 2011.

  1. Hello,

    I'm paper trading IC on SPX. Relatively new to the strategy and I was planning to practice monitoring and adjusting ICs keeping them on close to expiration. As a part of risk management I set up limit and stop limits orders.

    Issue that I have is that I'm getting filled on my orders. Example:

    May 11 1220/1225 1430/1435 SPX IC placed on 07/04/11 at 9:46 for .75 credit. Filled today for .25 debit.

    VIX was fluctuating yesterday a bit so maybe I got lucky.

    Having said that similar ICs on SPX and RUT go filled for respectable profit twice before.

    Is this common for ICs considering it is a lower risk more conservative strategy or am I completely missing something.

    Btw, I'm using TOS.


  2. vmora


    you received a credit of 0.75 yesterday for that spread and closed it out for 0.25 today, netting 0.50?

    orders in tos papermoney tend to always fill which is not the case in real time
  3. I recalled in TOS Paper Money they normally will filled your position in the mid price (Mark) after a very small delay.

    In real life, to get filled for mid price in SPX options ? Forget about it except the MM is sleeping that time !!
  4. Thanks for your replies.

    It did seem too easy to get filled for good credit. I will keep this in mind for the future.

  5. Consider thinking of the two credit spreads that make up the Iron Condor as your trading entity. This gives you more flexibility in understanding how to manage them to take advantage of opportunities and to avoid jeopardies. I don't recall if ToS makes it easy to separate the PUT spread from the CALL spread for trading once it has been entered as an Iron Condor.

    Execution price and timing are the biggest weaknesses of paper trading. It is a good environment to work out the mechanics of trading your strategy and to get an indication of the returns to expect. After completing my paper trading effort, I enter a stage of small money trading. Only when this works sufficiently well to I enter the phase of serious money trading.
  6. DGunz



    You will tend to win more than you lose but that doesnt mean you have a profitable strategy. If you backested and developed a strategy that has a real edge using IC, then it would different. But It seems like you are just paper trading any arbitrary IC.

    You are likely buying fair value spreads and paying commission which has a negative expectancy. Please read Howard Cohodas's journal thuroughly, you will learn something, from what all his critics have to say. More specifically that, IC's are not a strategy in of themselves, but rather a type of trade. Its like saying my strategy is to buy stocks,,,thats meaningless. You want to define when and under what conditions to buy IC's and then backtest them through data to see if your system holds up.
  7. Dgunz,

    Thanks for the input and reference to HC's journal.

    I have done back testing on IC strategy in TOS especially during volatile months to see how my trading plan would perform. The results were satisfactory.

    It is not just an arbitrary paper trading as I'm sticking to my trading plan and follow strict entry/exit/adjustment rules. Having said that it will take time to master.

    In regards HC's trading results. I feel that he is over relying on probability of touching as his primary risk indicator. Hardly any mention of market fundamental and technical screening and most of all no mention of delta management. I'm still learning but this has raised a few question marks for me... Also he started trading during not overly extremely volatile months aiming for 90% probability condors, so I would attribute a bit of his success to market conditions.

  8. DGunz


    If you are relying on TOS to backtest then you are only going back 16 months. What about 08? Do you close the spread and take the max loss or keep rolling, 08 would have made you roll out a many times. What would you have done?

    Also it doesnt matter if your short leg "never" expires ITM, if you are going on margin to do these spreads, if the market starts going against you hard, the bid and ask spreads are going to be huge, and margin calls may force you out of positions as well. Does your backtests include this?
  9. Relying primarily on PoT and not market fundamentals or technical screening
    You are correct to a point. I'm uncertain how you would apply these methods to an index such as the RUT (2000 stocks) in a meaningful way. If you believe that the price of the underlying and the price of their respective options already has this information, then the combination of PoT and price does a good job of integrating these concerns.

    Delta management
    Delta management is a natural consequence of two aspects of my strategy. First, although the credit spread is my trading entity, I aim to enter the companion spread to from an IC which will achieve a nearly delta neutral portfolio position. This is achieved in more than 90% of the spreads I've entered.

    Once the spreads are entered, delta changes over time. I do not make adjustments based on my observation of delta, however closing spreads that have achieved most of their return and opening a new spread to reform the IC does, in fact, readjust delta toward being delta neutral once again.

    Most of the trading has been in low volatility environment. However, a significant component of PoT is IV and recent higher volatility has show that it adjusts appropriately.
  10. Fair enough comment Dgunz.

    For 08 crash I simulated taking a hit of around 20% in September and then I would have stayed out of condor positions for quite sometime due to high VIX. Having said that I remember having a conversation with my financial advisor around sept 08 and he assured me that the markets would recover swiftly, if I could only get my hands on that @#$%#$.
    Having said that it is easy to say once you are looking into the past.

    I appreciate your point about bid/ask spreads and more importantly getting filled as TOS will use mid to calc p/l. I'm going to reprocess back testing using OptionVue to see what sort of results I would obtain. BTW, have you performed any back testing yourself for ICs? I would appreciate your thoughts as to how you handled 08 and may 10 flash crash.


    #10     Apr 12, 2011