Impromptu Video: Setting up Iron Condors and Strangles and Some Position Adjustments

This was somewhat of an impromptu video for friends and family on Facebook, but since a lot of folks here seem to like the trading-related videos, perhaps some will find it useful.

Setting up strangles and iron condors: I also mention adjusting bad stock trades towards the end, but this is not really meant for people with just cash accounts or 401ks. I’ll try to write up something more general later, though to be honest, if you have those types of accounts your options are rather limited.

I tried to keep the jargon to a minimum, but I am assuming a basic knowledge of options here.

Iron condors can be thought of as two different things depending on your strikes and what you intend for the trade. The first is what you’d find in a book on trading, basically a defined-risk, delta-neutral short premium position. These are going to have relatively narrow wings to keep the potential losses small. The second way is to think of them as an approximation of a strangle. Here, you’d have wide wings, only buying the long options to cut down on buying power requirements or to synthetically do a strangle in an account that is not permissioned for naked options. The iron condor I did is closer to the first case. Obviously, there is a continuum between the two extremes. Generally, with the first type of condor, I’m looking for a credit that is ⅓ the width of the wings. I collected a little more than that on this particular trade.

Expirations: Regular expirations not weeklies, ideally closest to 45 days to expiration. I tend to roll the position out to the next cycle if there are 21 days or less left. I did these with 28 days left, which is borderline. I figured with the higher volatility, it was worth the additional gamma risk. I look to close trades when they reach 50% of max profit. This cuts down on portfolio P&L volatility.

One thing I forgot to mention in the video, or only did so obliquely, was that I have my options screen set up to save the delta and probability of expiring in-the-money displayed next to the prices.

So as of now, I don’t have many positions on. I usually have three to four times the number of trades on. Assuming some of the chaos abates a little, I will begin to put on more trades to take advantage of the high implied volatility. Normally, I want my portfolio to have a small amount of short bias to it though I am pretty close to delta neutral. The short deltas are a partial hedge against expanding volatility.

Tip Jar: http://paypal.me/kpmooney