The Ugly side of Iron Condors

SPX on Friday June 24th 1268.45
SPX on Friday July 1st 1339.67

There were several large customers selling out of the money put and call spreads in the SPX weekly options early last week. Seemed pretty safe, turned out not to be. Saw many 1000 lots that were sold at .30 and .40 being covered Friday for $8 and more.

 

Oh, "condors." I thought I read something else.

 

Not sure who is doing the IC with risk/reward > 20 ?

 

It's doubtful that a trader rode the entire loss to $8.00. Probably closed at $0.80 and the next guy closed at $1.60 and so on down the line.

 

Not the case. This was the same guy. The people who trade against these sellers are generally the market makers in the pit. Their spreads get put in their positions and hedged. They will not have to cover the entire spread at once, especially the put side that is trading at 0.

I often trade against this seller as well. I do not leave the Condor on, but trade around it and generally end up with butterflies.

 

You seem to have insights into the individual trading habits of some traders that a retail trader would not have. What can a retail trader learn from your insights?

 

I watch the COB (complex order book). At the CBOE market makers/broker dealers cannot leave orders in the COB for SPX options, they can only take orders out, so when you see a large order sitting there its not a marker maker's.

These have been placed in the weeklies for some time. The customers will also place out of the money call and put spreads individually. When I watch the orders trade initially, quite often they are taken out in smaller numbers. For example that initial 1000 lot might trade in 20 separate orders. When the trades were covered Friday, they were covered in 1 order, suggesting it was the original customer.

 

I also sold an NDX Aug iron condor when vol was elevated. But took it off when the market started rallying, ended up losing ~8% on margin.

I wonder anyone here also sold iron condor around that time??? are you still staying in position, or took the loss and got out???

 

I had several condors one and closed out the majority last week, taking a loss on them. I still have one open, but this one looks ok for now.

 

Stay away from the call side. Period...