(09-26-2019, 10:10 PM)NilesMike Wrote: I don't know if the group thinks this is a conservative option trade or not. Let me know.
It's been a staple income generator. SPX Iron Condor. 12 Delta, 25 wide wings. 66DTE. Exit is down 200% of credit received OR 50% of credit received OR 33 DTE. Whichever comes first
I know you have been doing this awhile. What is your preferred method to remain conservative? Are you wagering the SPX stays in a reasonably tight range in the near term, or trying to play the likely bounce off over sold or over bought conditions?
(09-26-2019, 10:10 PM)NilesMike Wrote: I don't know if the group thinks this is a conservative option trade or not. Let me know.
It's been a staple income generator. SPX Iron Condor. 12 Delta, 25 wide wings. 66DTE. Exit is down 200% of credit received OR 50% of credit received OR 33 DTE. Whichever comes first
I know you have been doing this awhile. What is your preferred method to remain conservative? Are you wagering the SPX stays in a reasonably tight range in the near term, or trying to play the likely bounce off over sold or over bought conditions?
I put the trade on with the short wings @ 12 Delta (88% probability of expiring out of the money)
Current open position was initiated 9/23 when SPX was 2985. My short legs are 2735P and 3140C
Just letting the probabilities play out and keep the time decay.
This sounds like something I would be interested in trying. I may need to move an account to lower commissions. I knew you have been playing iron condors on the SPX for a while. Can you walk me through the costs to make the trade you just described. How much cash/margin is needed. Typical premiums received for a conservative 30 day position.
09-27-2019, 07:06 PM (This post was last modified: 09-27-2019, 07:46 PM by NilesMike.)
I'll use this currently open trade to put real numbers around it.
9/23 sold 12 Delta (at that time) Iron condor. 15NOV19. Entered a few days later than desired (extenuating circumstances), looking to enter 57-66 DTE.
-2735P +2710P
-3140C +3165C
So wings are 25 points wide.
I collected $4.60.
Margin $2,500
Commission $6.00 to enter, will cost another $6.00 to exit.
Per 1 lot
Exits= Minus 9.20 (200% of credit received) OR plus $2.30 (50% of credit received) OR 33 days to expiration arrive (profit/loss unknown until then)
Backtested (not by me) returns 2007-2018, non compounded is 44% annually.
Compounded would be crazy numbers and insufficient volume to execute, also there are some stiff drawdowns, but only 2 negative years. 2007 (8%) and 2018 (42%)
Thanks for going to all the trouble Mike. I think that has a place in one of my accounts. I understand the mechanics of all that. I'll have to watch some vids, and get my head wrapped around the the loss potential in a severe draw down. It seems you would have time to escape in all but the worst crash days. Probably not significantly different than the risk of having a dozen or more puts sold and open about half the time.
09-28-2019, 07:30 AM (This post was last modified: 09-28-2019, 07:37 AM by fenders53.)
(09-26-2019, 10:10 PM)NilesMike Wrote: I don't know if the group thinks this is a conservative option trade or not. Let me know.
It's been a staple income generator. SPX Iron Condor. 12 Delta, 25 wide wings. 66DTE. Exit is down 200% of credit received OR 50% of credit received OR 33 DTE. Whichever comes first
I have done some DD and now understand the potential downside is known at time of entry. That is VERY desirable. It doesn't qualify as a truly "conservative" strategy without that safety. I understand you can make an argument my put selling strategy to enter long positions actually lacks that. There is no way to compare the strategies with 100% objectivity. I'm not asking you to do that however.
I have questions about the multiple exit strategy parameters.
-Cut your losses to fight another day at 200%. I get that. The market can turn against us in the context of a contract's short life. 200% actually sounds scary but it's not a big number in actual dollars for this conservative trade with a defined max loss at entry.
-Close at 50% of credit received. I understand back testing proves the math works out over the long-term. P/L per day tends to be maximized there. Close enough over many trades anyway.
-Mechanically leaving at 33 DTE? It's obviously half of the time since you opened the trade. The logic of that eludes me some. All things being equal that should be around 50% of the time decay. That part makes sense. But IV% changes with the wind so it seems a little too mechanical. So I am asking you to defend that exit "rule".
"-Mechanically leaving at 33 DTE? It's obviously half of the time since you opened the trade. The logic of that eludes me some. All things being equal that should be around 50% of the time decay. That part makes sense. But IV% changes with the wind so it seems a little too mechanical. So I am asking you to defend that exit "rule"."
Low gamma positions display a flatter risk graph, reflecting less fluctuation in P&L.
High-gamma positions display a steeper risk graph, reflecting high fluctuation in P&L..
By closing at the halfway mark, you avoid that risk and enter a new trade with bigger credit due to time value being greater (all things being equal)
IRON CONDOR GAMMA RISK – COMPARING WEEKLY AND MONTHLY CONDORS
First up we have two iron condors with the short strikes set at delta 10. The weekly condor has a -4 gamma which is twice as high as the monthly condor at -2.
After a -2.0% move in the underlying, the weekly condors gamma has switched to positive and exploded out to 62, while the monthly delta has only moved to 20.
09-28-2019, 06:08 PM (This post was last modified: 09-28-2019, 06:09 PM by fenders53.)
Thanks, that's clearly a much higher level of option thinking. I'll do much more study before I make a significant trade. I don't know what gamma even means yet, but I have witnessed what you are describing over the course of a few hundred covered put and call sales. Once you get inside 30 days or so the premium erodes fast if you are OTM. I usually don't need to free up capital, so I have watched a lot of options ride until expiration. It's unnecessary risk after you squeeze out much of the premium in just a week or two when it goes your way. anyway, I've been interested in learning more about neutral spreads for some time now. Now I am very interested. I just need a better understanding of what happens in a period like NOV-DEC 18, and then the ensuing SPX launch for months there after. Careful selection of option legs tempers that risk of course.
Quick update for last month.
Still juggling those WBA covered calls.
Let go of my intel covered call position at a loss.
Came within inches of getting assigned on some MO puts, thankfully I dodged that one.
Nice profits from AMGN puts.
Sold a put for MA recently, really conservative strike.
So you can expect MA to crash hugely in the coming weeks.
That's a pretty good graphical representation. ATM premiums drop like a rock when you get close to expiration, and the whole premise of selling puts to enter virtually all my long stock entries. If it takes two attempts to enter you have often collected more than a full year of dividend income. Pick the DTE carefully and you might also collect your first dividend within a month of going long.
The chart might not be flat enough from 90 days and further out. If the market gets a little choppy premiums just sit there. I sold a handful of calls as much as 6 months out this year to get some decent premiums. My real life experience says don't do that anymore. There are greener pastures elsewhere. You can circle back and grab it later. Remember back in FEB when I said I was going to sell some long dated puts in NWL? I sold a SEP strike 17 put when the stock was 19+. $2.10 premium. Looked good on paper and I was counting on the high dividend to save it until the company turned it around. The stock went sub $14 and the put was way upside down for almost the entire time I held it. A good earning report saved me with under 30 days left. I did hold until it expired worthless. The stock was so volatile and the premium decay was stubborn. The return was fine in the end but it was not a good way to play it. Way too much can happen in 6+ months. I'll leave that for the long part of my port. I'm hesitant to even go 60 days now. I see few examples where it makes any sense for an individual stock.
Sold a HON and a MDT put on the dip this morning. Rolled my ill timed MMM put forward with a lower strike for more premium. Still don't own a share long but MMM has a sufficient fan base to keep a floor under it. It's been one of my easiest stocks to manage puts for a profit. Thought I wanted to be long MMM 20+ points ago but patience is going to pay off.
