Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.
-
Welcome Guests
Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.
Search the Community
Showing results for tags 'options trading strategy'.
Found 1 result
-
Selling the iron condor has become a very popular strategy amongst retail traders. It seems like every time I open my gmail account, I’m getting offers about passive income trading with high probability condors from sales vendors. The truth is that the Iron Condor is a much more nuisance strategy than most people would like to admit. Iron Condors consist of two vertical spreads: the put vertical and the call vertical. These spreads can be sold near the money or farther out of the money. The goal obviously is to buy the trade back for a small debit. Expressing a view of volatility What most retail traders fail to realize is that the Iron Condor is not a price only trade. It is primarily a vega trade. Vega is the trade’s sensitivity to changes in implied volatility. The biggest misconception that a lot of practitioners have is that the only threat to the trade is delta and/or gamma. It has been my experience that selling Iron Condors every month mindlessly has a negative expectancy. Failing to take note of this can drive you crazy, and have you locked into the trade until the day of expiration. Since volatility is mean reverting, the goal should be to sell condors into rallies in Implied Vol. Timing Options, as we all know decay. They shed value each and every day. However, all options do not decay at the same rate. It is really important that retail traders understand this concept. Out of the money options decay at much different rate, than options near or at the money. Here is a graph that my buddy andrewfalde posted on his site: As you can see, when you sell OTM( out of the money ) options inside of 30 days you are basically locked into the trade until expiry week. The majority of the theta decay has already taken place by the 30 day mark. The real sweet spot for capturing pure theta is between 60-55 days from expiration. Your delta and gamma exposure is much smaller, and you can take advantage of the otm options shedding their value. Keep in mind, everything in options trading is a trade-off. There is really no right or wrong way of doing things. If you are a highly technical trader, then selling inside 30 days to expiration may very well work for you. The truth is that whatever strategy you choose, you must educate yourself on the pros and cons. Personally, I like to sell .15-.28 deltas 60 days out only when IV rallies. That’s a personal trade plan decision that I made based on my own risk tolerance levels. We all have to do what is best for our OWN trading accounts. Hope this helps. Green Trading everybody!! Voltrader
