Credit Spreads

[TinGull]

••• Update •••

Filled on my NOV 161/160/143/142 Iron Condor for credit of .21 this equates to a 22% ROI after commissions.

28 days till expiry now

[brownsfan019]

Now that you are filled Tin, that is telling us that someone out there is speculating that the market will reach either of the levels and if so, they will cash in, correct? So from their point of view, they are spending a little to hopefully make a lot, even though the odds are not in their favor?

Just trying to get a handle on both players here.

You are playing the probabilities and saying I'll collect this 'small' amount b/c the odds are really in my favor. The other person is saying I will pay this 'small' amount b/c I am paying so little for it.

Am I getting there?

[brownsfan019]

Tin - also, do you have to have 2 strikes on each part of the condor? Can you just sell a put and sell a call? Or is there a reason for the 2 strikes on each part?

[TinGull]

First part...you're right on.

As for the 2 strikes, yes, you need 2 as you are long 1 strike and short the other. Basically a hedge so you're not selling naked.

[brownsfan019]

	Quote:	TinGull
	First part...you're right on. As for the 2 strikes, yes, you need 2 as you are long 1 strike and short the other. Basically a hedge so you're not selling naked.

OK - how do you determine how big the spread should be between the strikes? And how does that affect the bottom line?

In your trade here - if price goes PAST either level, that is not good, correct?

And as for needing two, that's b/c the long and short basically 'cancel' each other out so that you are not selling naked? This still allows you to sell the position as you have done here, but you are not naked b/c both sides are 'covered' in some fashion?

[brownsfan019]

And in the end the Iron Condor just says - as long as price stays between my levels, profitable trade. If it reaches or approaches either level, you may need to do something as the trade did not work as planned.

Is that the idea and the rest is simply the mechanics?

If so, I could outline some possible S/R areas and you could illustrate how an iron condor would work?

[TinGull]

	Quote:	brownsfan019
	OK - how do you determine how big the spread should be between the strikes? And how does that affect the bottom line? In your trade here - if price goes PAST either level, that is not good, correct? And as for needing two, that's b/c the long and short basically 'cancel' each other out so that you are not selling naked? This still allows you to sell the position as you have done here, but you are not naked b/c both sides are 'covered' in some fashion?

I determine how big it should be by looking at the risk associated with it. Basically, I keep moving them around to see if a 2 dollar spread would work better than a 1 dollar...and right now there's a couple more positions that look TASTY.

If price were to go past one of those levels, I'd already be adjusted or hedged so that wouldn't matter. It would suck, yea, but I'd be safe.

3rd...right.

[TinGull]

	Quote:	brownsfan019
	And in the end the Iron Condor just says - as long as price stays between my levels, profitable trade. If it reaches or approaches either level, you may need to do something as the trade did not work as planned. Is that the idea and the rest is simply the mechanics? If so, I could outline some possible S/R areas and you could illustrate how an iron condor would work?

And yes, exactly. That's one of my main beef's with people who are obsessed with greeks. Bottom line is that at expiration, price needs to be at a certain point and you make money. Sometimes people get real wrapped up in it all, and I know it's important to take into consideration for complex strategies, but things I do aren't complex.

Sure, outline some S/R areas and I can show you how it'd work.

[brownsfan019]

Tin,
Thanks for sharing and bearing with me. It's been so long since I even thought about a call or put, let alone a condor that I needed some refreshing.

I'll see if I have some time this weekend to throw up some charts and see what you think.

[TinGull]

No problem