Stevegee58's Option Trades: Road to Consistency

Discussion in 'Journals' started by stevegee58, May 2, 2013.

  1. I've been trading real money Iron Condors on index options since January of this year and decided to start a Journal thread to capture my method and trades.
    I hope that by publishing my activity I can achieve some consistency.
    My method is not complicated and is my own mix of concepts from various sources.

    I currently trade only NDX and RUT options for this.
    They're both European settled (no early exercise) and traded on multiple exchanges. They're liquid, have plenty of open interest and have good bid/ask spreads.

    Entry Rules:

    1. When to enter: 45-49 days before expiration.
    2. How wide: I select the short strikes based on delta. The short call's delta is about 7-8, the short put's delta is about 6-7.
      I like the puts a little further OTM as a cushion since markets tend to crash down rather than up.
    3. Wing distance: For NDX the long call and put are 1 strike (25 points) out from the shorts. For RUT I put them 2 strikes (10 points) out.
    4. Enter the IC all at once, don't leg in.
    5. When the IC is entered in IB TWS I place a limit order initialy at the mid between the spread's bid and ask. If it doesn't fill for a while I'll gradually move it a nickel at a time until it does.

      Management Rules:
      1. Check the deltas of the shorts daily.
      2. If the short call's delta crosses 25 intraday and there are 2+ weeks left, roll up the calls the next day.
      3. If the short put's delta crosses 20 intraday and there are 2+ weeks left, roll down the puts the next day.
      4. I said "next day" above to give the market a chance to retrace. I may at my discretion NOT close if it's a big retrace.
      5. If either of the deltas are crossed but it's less than 2 weeks, close the violated side (i.e. calls or puts).
      6. When rolling, choose a short using the same delta rules as initial entry (i.e. 7-8 for calls, 6-7 for puts).
      7. If it's near expiration and price is closer to one of my shorts than I like I may close out that side just to be safe.

        You can see from the entry rules that I like the IC fairly wide. I'm aiming for about a 10% return on risk with minimal adjustment required.
        For me these are not fire and forget trades. I want to manage things to improve my chances of profit and also protect capital.
        I never let price action get too close to my shorts, hence the adjustment rules. The biggest risk I see is gaps. It is possible that a large gap could appear overnight that puts one of my shorts at risk.
        I'm aiming for high probability and low(ish) stress.

        Today just happens to be 49 days from expiration for the June options so I entered new trades. Here are my fills:

        NDX 2906
        RUT 938

        NDX OPT 20130620 3100C + NDX OPT 20130620 2550P - NDX OPT 20130620 3075C - NDX OPT 20130620 2575P 2.40 SMART(USD) 10:29:30 CREDIT
        RUT OPT 20130620 805P + RUT OPT 20130620 1015C - RUT OPT 20130620 815P - RUT OPT 20130620 1005C 1.05 SMART(USD) 11:13:52 CREDIT

        I have 2 other ICs open from last month that are doing fine and probably won't require adjustment.
  2. I see you adjust based on delta's. Do you use any TA or charts to guide the precise entries? Actually not a bad year for IC's...been doing very small on SPX but having to adjust the calls as market has been pretty much on a drumbeat to the upside. What I've been doing to adjust the calls is buying a higher call spread turning the calls to long fly's.

    Doing much better selling straddle/strangles on the ES...using the cash to hedge to the upside.....anywhoo..GL on your Journal, always interesting to follow an option centric journal.
  3. Steve,

    I wish you well. The only thing is I know that these trades have a way of working and working and working until they blow up. I know that your trading rules are designed against a blow up, but for example what if there is a worst case scenario where the market keeps falling more and more and rule #3 for example is constantly hit?

    It can be very hard to keep rolling down and accepting large losses while taking in a bit extra premium, etc. Yes, it may not happen often but if you can, you might want to check how your trades would have done (getting historic prices and estimating the option prices, etc.) for the 1987 crash, Mar 2000 through Oct 2002 and 2008 Lehman times, etc.

    One thing I was wondering that you may or may not want to add to your rules is if everything is going good and the market hasn't move and IV has fallen, do you close at say keeping 80% of premium if there is a week left, 2 weeks left, etc, etc?

  4. RichardRimes:

    I don't use TA. It's all based on probabilities. The drumbeat to the upside that you mentioned caused me to have to roll up one time last month.


    I hear you about blowing up. That's why I never really liked ICs until recently after some analysis. Really the worst that can happen is I lose a year's worth of profits. While that's pretty bad it's not a disaster. Also I've only allocated a portion of my capital to ICs, further protecting myself.

    I'll have a look at the recent crashes again. My shorts are really far away from underlying price at entry and I almost always have days or weeks to see things coming. In the case of big market crashes you're right it's a risk but this is all a big numbers game anyway.

    Regarding closing everything out and taking all risk off the table when I reach 80% profit: I've thought of this and may incorporate it. Last expiration NDX and RUT were right in the middle and had a very, very small chance of crossing my shorts due to a crash. I let them both expire but what if North Korea lobbed a nuke at someone after the last day of trading but before they settled? I'd be screwed.

    Thanks guys.
  5. That big up day on Friday has me on alert, but my short calls on NDX and RUT at still good for now.

    NDX 3075 June Call delta: 15
    RUT 1005 June Call delta: 15
  6. I'm starting to feel the heat on the short RUT 1005 May Call with a delta of 24.

    It's more than 2 weeks until expiration so if the short Call delta crosses 25 I'll roll the call side up tomorrow.

    Obviously a down day would be welcome.
  7. I meant the RUT 1005 June Call, not May. The delta yesterday never reached 25, however it's at 26 right now.

    So the rule is I try to roll up the Calls next trading day which is Monday.
  8. Rolled up the RUT June call credit spread (the call side of the IC) from 1005/1015 to 1040/1050 for a debit of 1.9.
  9. I'm detecting a theme here. The NDX 3075 June short call exceeded 25 delta yesterday so I'll be looking to roll up today.

    This rolling up costs me money but it's not a disaster. That said, it's really not supposed to be happening this often either. This artificial propping up of the market is getting tiresome.
  10. Rolled the NDX 3075/3100 June call credit spread up to 3175/3200 for 4.5

    I placed the limit order at the mid but got filled instantly. I feel I screwed myself somehow. Usually my mid orders sit for a long time before they fill or I move it.
    #10     May 15, 2013