May 23, 2017 at 2:31 pm #7988
SPX at 2398
VIX at 10.86
We’re going to put on an Iron Condor in 21 JUL MONTHLY expiration cycle with 59 days until expiration. We’re selling:
SPX 2270/2260 Bull Put spread
SPX 2485/2495 Bear Call spread
Short strike on the put side has a delta around 15 and the short call delta around 10.
These are 10 point wide credit spreads.
Our Max Allowable Loss (MAL) is around 1.5 times total credit. If total credit is $1.70 then MAL is $2.55
Our first profit target is 50% of credit in 25 days or less.
We’re going to manage this position when short put delta reaches 25 or short call delta reaches 20
Using OTM options as ahedge: https://youtu.be/Etu1JFeXMSs
IncomeLab Order Ticket Type Asset Duration Strike C/P BTO SPX 21 JUL 17 2495 Call STO SPX 21 JUL 17 2485 Call STO SPX 21 JUL 17 2270 Put BTO SPX 21 JUL 17 2260 Put Total Credit: $1.70-$1.80
May 25, 2017 at 6:43 am #7995
Igor – a great initiative having a short video!
A Quick Comment – It might be useful to split your videos into:
1) – those that are thinkorswim driving lessons
2) – those that relate to your specific decision-making on the Iron Condor – so we can learn the detail from you.
A number of your followers would use different brokers. I use IB for instance.
Whilst there is plenty of material around on how to open up an iron condor – it would be great to get some detail on your specific approach – ie reasons for decisions on deltas, distance from the underlying and duration.
Maybe thinkorswim driving lessons could go to a more permanent general area.
I find your work very helpful.
Many thanksMay 25, 2017 at 9:34 am #7996
Thank you for your feedback!June 2, 2017 at 9:48 am #8031
SPX at 2430.
2485 Call is 20 delta and it’s time for an adjustment. The first thing I’m going to do is figure out my NET delta of this position.
My NET delta is -53. I’m going to cut 2/3 of this directional exposure by buying OTM options in the same expiration cycle (49 DTE). 53/3*2 is how I figure out how much delta I need to add to this IC. I’m going to need to add about 35 delta. I’m going to use (4) 8 delta calls (2520 strike). Buying FOUR 8 delta calls will add 32 delta to this IC and will reduce NET detla from -53 to -21. This is what P/L graph looks like after this adjustment.
IncomeLab Order Ticket Type Asset Duration Strike C/P BTO SPX 21 JUL 17 2520 Call Total Debit: $2.20June 7, 2017 at 7:10 am #8044
– A quick question – would it have been a neater solution to have bought back some of the 2485 CALLs that you sold as part of the original IC?
– One would then be left with the original Bull PUT – plus a Ratio Backspread on the CALL side. Ratio Backspreads seem to be neat, flexible and easily managed with a changing Delta environment.
– Many thanksJune 7, 2017 at 10:26 am #8048
In my opinion, there isn’t a big difference between buying OTM options and buying back one of the short options of a bear call spread. This is what this IC looked like at the time when an adjustment needed to be made:
Buying back one of the short 2485s would look like this:
And buying several OTM calls would look like this:
This IC NET delta before adjustment was -55. I wanted to remove 2/3 or 60% of my NET exposure. 60% of 55 is 33, so I needed to add 33 deltas to this IC to lift my T+0 line. 2485 was a delta 20 at the time and buying back 1 call wouldn’t cut NET delta enough for me. I went with buying (4) 8 delta calls. I like to use OTM options to cut delta because if the underlying makes a sharp move higher those options will gain value quick (due to gamma) and those profits will help me offset the cost of rolling up the call spread that’s under pressure.June 8, 2017 at 9:25 am #8059
– As usual the detail was extremely helpful.
– Clearly as you state there is not much difference – So it is probably personal preference.
– What I find very powerful is how easily the shape of the Risk Curve can be changed – just by how many Deltas are added.
– Many thanksJune 8, 2017 at 2:57 pm #8062
That’s the name of the game – keep that T+0 line in check and dont let it sink too deep 🙂June 9, 2017 at 11:03 am #8063
We’re going to BUY TO CLOSE 2270/2260 BPS here. This will leave 2485/2495 (hedged) bear call spread.
IncomeLab Order Ticket Type Asset Duration Strike C/P BTC SPX 21 JUL 17 2270 Put STC SPX 21 JUL 17 2260 Put Total Debit: $0.30June 13, 2017 at 9:58 am #8080
We’re going to add a put spread here to balance this Iron Condor.
SELL TO OPEN 2340/2330 Bull Put spread
IncomeLab Order Ticket Type Asset Duration Strike C/P STO SPX 21 JUL 17 2340 Put BTO SPX 21 JUL 17 2330 Put Total Credit: $0.70
P/L graphJune 15, 2017 at 9:52 am #8087
Igor – The Bear CALL is still hedged. Should it still remain that way?
– Many thanksJune 15, 2017 at 11:24 am #8098
Yes, we’re going to leave those OTM calls and IF SPX starts to ramp higher we may need to add some more upside hedge.June 22, 2017 at 10:14 am #8122
We’re going to cut our NET delta exposure again as original OTM call hedges lost some of its value and delta has decayed in those options. We’re going to look at our NET delta for all options of this trade and use 28JUL (36DTE) cycle to cut our NET delta by 50%.
This is what our current P/L graph looks like
Our current NET delta is about -30. We’re going to pick up +15 delta by buying (2) 28JUL 2505 calls and this will reduce our NET delta from -30 to about -15 and will lift our T+0 line on the upside.
IncomeLab Order Ticket Type Asset Duration Strike C/P BTO SPX 28 JUL 17 2505 Call Total Debit: $2.00July 7, 2017 at 1:38 pm #8220
We’re going to BUY TO CLOSE this Iron Condor, leaving OTM call hedges to either expire or close for what they’re worth
IncomeLab Order Ticket Type Asset Duration Strike C/P STC SPX 21 JUL 17 2495 Call BTC SPX 21 JUL 17 2485 Call BTC SPX 21 JUL 17 2340 Put STC SPX 21 JUL 17 2330 Put Total Debit: $0.50
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