Indeed my deltas had to be pretty high in order to aim at delta neutral, but I think my whole issue was the impatience. As a huge tasty trade fan I always knew I should listen and follow them when they suggest putting on spreads 45 DTE but that always felt way too long.. I usually did mine may 2-3 weeks out to collect theta faster and essentially get paid sooner lol I even dabbled with 7 day spread and got burned plenty of times.
Now I know better and like GI Joe used to say, knowing is half the battle!
Well there is good news all around. There is no magical time period for one to sell Theta but it requires different considerations for each time period. Took me a while to determine this. For example, 45 days one will have a larger runway or sides of the condor wings. As the days till experation come in, that span will be reduced if one expects to make some returns. For the Delta, realize that number is in general the probability that the strike will expire ITM. So if one is getting into high deltas there is also a high probability that the short strike is going to be threatened by the market. This also means one has to be ready to adjust more frequently.
Couple of thoughts: The longer out ones experation, the more the risk with Vega or volatility. The shorter the time period, that 14 - 7 day period, the more gamma or price risk one has. Additionally, the futher out one is when entering a position the less the amount of directional bais needed for that entry. However, as you get closer to experation one might need to incorporate some technical analysis to increase the probability that their strike will not be threatned. Unless you want to select strike prices that are in a high probaiblity zone but the premiums are less, if they exist at all.
For me, I see selling Iron Condors as a probability game and make decisions around that belief. This means I am always looking at the probability of my short strikes of being ITM. So even if my position has a loss or my net liquidation is down but the probability (delta) of the short stike is not at a level of my concern, I just sit tight. I cannot manage Iron Condor trading looking at daily P&L's. I am not sure one should as one is selling Theta and that means time. During the period of one selling Theta, prices will move and it is these price moves outside the norm, defined by ones business rules, that one needs to manage like a hawk.
Last edited by spreadhead; October 20th, 2014 at 03:59 PM.
Today we had the futures in a normal trading range at the start. By the end of the trading session, a bullish climb had taken place. This was nice to see as there was no panic selling. It does seem the general forecast are bullish for the economy over the mid-term. That does not impact me greatly anyway as I am directionless in my trading about 35 days and greater.
Today I placed one trade. The volatility was lower today so that helped reduce the prices of contracts as a whole and especially in the Put contracts along with the bullish climb. So I had an IWM position that had lost value and I thought it wise to close the trade out. In addition, I decided to get into another position as well to get a little more income and not take on too much risk. This reestablished position was only a 4 day trade. Because this is such a short duration trade I am a bit biased that the market is not going to sell down to the 103.5 level by Friday.
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Last edited by spreadhead; October 20th, 2014 at 07:54 PM.
Here is a little more background on me. I have been trading this style of trading since 2009. I do not just trade my money I also manage money for a small set of limited partners. When I got started I had already traded options for several years, mainly directional trades, and I had limited success. After watching a lot of videos from the CBOE, reading lots of books from option strategies to option greeks, I then took some classes on spread trading and it seemed to make sense to me and started to click. I am an ok technician but sort of a lazy one. To me a chart with a lot of indicators can tell you a lot of things but I never got to the level where I had a formulated set of strategies I could use consistently use until I got to spread and Iron Condor trading.
Before I created my own partnership, I did Iron Condor trading on my own for about a year and a half during the 2007 - 2008 period. Believe it or not, I actually did pretty good. Looking back, it was luck because my management and adjustment methods were very weak. Although I knew of the greeks, I was not very good at understanding the interrelationship between them and how that might affect prices and when was a higher probability time to enter positions and lower probability time to enter positions. I am still working on this and trying to get better at the craft.
The following are my trading results by month, quarter and by year. I have had some blow up periods and I have tried to learn from them the best I can. My longer term goal with my monthly P&L is to have many more winning months than loosing months. Since I am high probability Iron Condor trader, my P&L should reflect this or that is the goal. Additionally, my goal is to try to reduce draw downs or the carry losses into the next month. In order to do this, I have to have a good adjustment strategy when a side of the trade is threatened. I also need to get better at taken profits off the table especially when there is 9 or less days left in the trade. Sometimes this is a judgement call but in order to meet my goal I should book these known profits. I really do not want to give back a large amount of profits in a month or quarter that require me to have to trade for several more months to get those profits back. There are some new techniques I trying to learn to help with this.
In reviewing my performance there was one period I was not proud of. Several things happened during this blow up period. 1) I was in vehicles that might not have been ideal for Iron Condor trading (GLD, TLT) or if they were I was too wet behind the ears to manage the volatility when these two ETF either fell or climb fast. 2) GLD moved with some price behavior that was outside of the move that I would have expected with IWM or SPY, so I stayed in too long and absorbed some losses. 3) I was not watching my trades and applying effective money management techniques. I either waited too long to make an adjustment or the adjustment that I did make, rolling out, just led to additional losses. The only way at that time for me to get these profits back was to suck it up and wait for more time to pass and book profits.
Recently, I have done some additional study and I feel that maybe I am getting to a new level in my trading and my ability to control my emotions or trying not to make impulsive trade decisions. Some of this is because I using better tools and some of this I have gotten by trying to model some other professional traders.
The follow are my results since 2009 - 2014 current month.
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Today was another crazy day and a chart pattern emerged that I call the killer of Iron Condor Traders. It is the Big "V". This is where the market goes one direction big then reverses and goes big in the other direction. This has happened several times in my trading and it for sure happened today and it is these periods that test the Iron Condor trader.
First, I over traded today and I do this sometimes when there are big moves. I felt like Kung Fu Panda today for sure. Although I over traded, in looking back, I was pleased with my level of thinking and the various adjustments that I deployed. I did have a blow up trade today but I did make an adjustment that I am hopeful will allow me to not have such a big loss. I just need the market to calm down a bit or have a reversal of sorts. Now if the market climbs big again this week, I will have to make more adjustments and I might have to realize a big loss. I do not want this to happen and I have been positioning my account to address this. Why did I have to make so many adjustments? The market moved too much this week and after last weeks moves, I was in a weak position on the Call side. So the big V move got me flat footed today.
Today futures were flat going into the opening and the market looked like it wanted to climb higher. However, after more and more selling pressure there was not enough energy to carry markets higher and we gave back a little. This was welcome news for me as I had over traded yesterday to try to balance things and not trying expose myself to more upside risk in case the markets wanted to climb higher.
Emotions of when the market goes against you big:
I have had the market go against me many times and really try to rattle my cage with big moves. The following are some details I have learned.
For example, lets say I am in a +-23 delta credit spread pre market open. Then the market opens and now I am in a +-29 delta position. Since I entered the position when the Delta is +-11, I am in the "house of pain" right now. So I say to myself this is over done and the market will retreat. I am dead wrong and the market moves so now I am +-37 delta. Ok now what? This is where I need to execute the steps below.
In looking back at yesterdays action of trades, Oct 20th, I did over trade but I was not trying to revenge trade. Some of my over trading was because I was nervous and I admit that. Why would I be nervious? I have had positions where I was in a loss, thinking the market was overdone in particular direction, only to have the market rally or fall hard from that point and really be in some pain.
1) Remember you need to have a plan and some goals. Having multiple plans is even better.
2) These should rise to the top of your focus zone when you are staring at a loss in face. When the market is going against you, review your goals and try to focus your actions around those goals.
3) So what happened? At some point, you are looking at a loss on your screen or your net liquidation value is down and beyond a level of comfort. It is actually uncomfortable and might make you nervous or scared. Your pulse starts to quicken and your eyes get a bit wider as you stare into the screen. You might start to sweat. When you get to this point think about your plan and goals. Breath, and give yourself a little affirmation to encourage yourself. I always tell myself. "Ok, what do I want to do here?" I also think about what I do not want to do.
Take action or not take action? This is your decision no one can make it for you. If I take an action, what action am I taking, and why am I taking that action.
Remember, you have a loss but you are the decision maker and you have to be responsible.
4) Try not to focus on emotional drama or if the market will change direction and try not to rationalize how you might be right and the market is wrong. Think rationally about the various actions that you can take. Should you close your position? Should you add more as this is an opportunity? Should you hedge your position? Try to think of these decisions within the context of your plan and goals. Now your plan started hopefully before entry of the position and you have considered if the position goes against you.
5) Do not revenge trade. This is where you either over trade or you tell yourself I am right so you raise the risk even more and you try to challenge the market.
I needed to step away from the Journal after Monday's big move.
This has been a tough period as we have seen a 2+ standard deviation move on the Call side after the sell off on the Puts side on 10/16. For me, being an Iron Condor trader, I did well on the Put side down. I was sustaining on the Call side as long as we were inside of a 1.5 or 2.0 standard deviation price move. However, we saw more than that in the SPX, SPY, IWM. I deployed an adjustment strategy that bought short term time but this adjustment approach had an assumption built into it and was that the market would slow down. I was wrong. The markets kept charging higher and higher this ate into profits quickly.
I was holding up decent until the Monday surge. My thought at that time, was that we might be at a point of resistance at the levels on Monday 10/27. Again, I was wrong. So I had to start taking losses and then formulate a plan to counter balance these losses going forward. I am still crafting this plan. However, I want to strategically use capital in a more conservative way in the execution of this recovery plan until I can build up a little momentum. This should not take too long as there is premium to be found but I do not want to revenge trade.
Couple of observations:
The market in the last month as moved a lot and there is a quite a bit of confusion.
Are we going higher?
Can we take out the old highs?
Was this recent rally a point for Bulls to get out before a Bear market takes place? Lots of questions.
The VIX had a very quick spike and then back to calmer levels. However, there seems to still be a good deal of fear in the market. We are in a multiyear Bull Market at some point market conditions change.
When is that point?
What is the catalyst for change?
Maybe we a not there yet but these thoughts linger in my head.
So what is a restoration plan for a Iron Condor Trader that has just taken on a big loss?
1. Get to a point of stability. What does this mean? It means your positions, if you have any, are neutral from a market direction perspective. Do not lean too much to the Bull or Bear side of the market.
2. Note the further you go out in Time for expiration the further out the strikes can be. As part of a recovery, you want to put probability back on your side.
3. I would not chase premium. Lots of trader do this and there are no free lunches. Higher premium means more risk unless you can tie in some market analysis that you think increases your probability but the market has not considered.
This means considering support and resistance levels that look strong and will or won't be broken.
4. A couple things need to happen after taking this loss. You want to restore confidence and you want to restore the account. Both are done by creating some wins and this means putting probability back on your side and letting time decay work again.
5. If one wants to try to get into short time periods to try to build back faster, one needs to understand the risk and reward.
Risk (Short Expirations):
1. Your strike zone will be small and not as wide.
2. You positions will be more sensitive to price moves.
3. An increase in volatility is also a risk.
4. If you are wrong you will have to adjust faster.
1. Faster Time Decay.
2. Premiums might be a little better as volatility is still up a little.
What is my plan?
1. I want to restore the account size over time but not too long but want to balance risk and reward in my approach.
2. I am going to need to go in like a surgeon and try to get some wins.
3. Now prior, in my performance number in another post, I have a big losing quarter, but then did not execute a good recovery plan, where I not balance Risk and Reward. I did not know any better. I think I took on more risk and the market once again proved I was wrong.
So my up coming entries will get into this recovery execution plan.
Last edited by spreadhead; October 30th, 2014 at 07:59 AM.