If I am trading SPX Iron Condors that have a PoP of 90%+ of success and P50 >99.5% my risk comes in with the occurrences of Black Swan events blowing out my OTM sold points. If the market touches one of the points and I adjust -- get back to delta neutral / maintain the credit by rolling out another month or two. In theory, can I avoid taking the loss / risk of Black Swan events. I know I would need to have a cash reserve and that liquidity could be a slight problem, but I could trade below market in a quick downturn. What are your opinions/ thoughts? Thanks.
don't get blown out trying to fly your condor in the middle of winter, stick with delta positive straddle and strangles...event based....why wait for the black swan, when there is a swan you can't even see...
Don't be that guy. There is no repair or loss-avoidance. A roll, in this scenario, is a massive loss. You're closing the options at a loss of 4x your initial credit. The JUN21 2600/2650/2950/3000 IC is trading at 5.15. Those are based upon 10D strikes for the short strangle. The stressed position (ATM) is trading at 27.8 today. This assumes that you're hitting the call strike (flat vol assumption). You've just taken a 45% loss on your account. Liquidity being a slight problem?
If Vol spikes and I am trying to roll to another month to give myself/ the position/ the market the time to recover, in theory I would be able to get wider in the strikes because the time value/ vol expansion at later dates would be greater = greater credits to take money off the table/ give the position the ability to eventually be successful (getting delta neutral to the best of my ability by managing both sides but keeping the credit roughly the same from when I entered). In theory one could do this constantly as long as the index survives and liquidity is present...
lol and the vol won't impact the position you're in. bc the object is to be right, not to make money? WTF are you smoking? Your net liq just took a 45% hit. You have half of your initial capital. So keep the credit roughly the same but you're working with half. You're the prototypical sucker at every table. Thank you for (whatever) liquidity you provide.
The ATM stress at 27.8 presumes no change to the vol-line. What happens at SPX 2650? Where's the IC going to be marked? The microstructure alone will kill you. The spread may be 20x40. You're married to the thing if it touches the inside strike. It won't be worth rolling. It's a band-aid for a bullet wound.
Here's the 1W to LTD stress on the 50-wide IC. JUN3 expiration. So hold the JUN21 IC for three weeks and here you are on a strike touch at flat vol with 7D to expiration... $23 marked. So much for the magic of theta: