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Another great day for time decay! The SPY position is sitting real nice and pretty, and I'll be putting a position on the IWM hopefully monday for a fill. Currently working a 88/86/72/70 Iron Condor with a wicked sweet spot. Overall the vol puts me at an 80% chance of expiring worthless come DEC expiration. Is this a beautiful trade? Absolutely! At a .75 credit, this is giving me a return of nearly 52% on the risk. Totally cool. The current mark of this spread is sitting at .71, and looking for a little rise in IWM Monday to give me a fill in the AM.

 

iwm_ic-20071102-161924.jpg

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Tin,

I really like the idea of these credit spreads. I mean, I find that many of the candlestick Support/Resistance areas that I find are often respected, so this would seem like an easy trade. So, what am I missing here? Once the zones are identified (and it appears they can be pretty wide), it's a matter of finding the right options and getting filled, correct? Is that easier said than done?

 

I'll see if I can find an example or two for your inspection. ;)

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Just some ideas for discussion. These could be completely off for credit spreads, so go easy on me.

 

SPY

 

attachment.php?attachmentid=3804&stc=1&d=1194108601

 

 

The overhead resistance is kinda close though, so maybe that would void this trade? Or would you consider just making the upper even wider? This is a SPY weekly chart, so not sure if that's good, bad or indifferent.

 

IWM

 

attachment.php?attachmentid=3805&stc=1&d=1194108997

 

 

 

I guess the real question is where is the 'sweet spot' on putting a credit spread on? What I mean is, as I flipped through some ETF's, I saw a good lower or upper area, but would be concerned that the other side of the trade was too close. In other words, with the SPY chart here, the upper side of this trade seems close to me. I think the lower end is 'safer', but the upper end would have me concerned.

 

How do you view this and handle this?

5aa70e199ce7b_tlspy.png.b324cf150848db3d21dbd4d2771241e1.png

5aa70e19a29af_tliwm.png.be8bd56eab96e86222bb407562eefd69.png

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Well, the IWM chart you show marks out the exact trade I'm currently working. My short legs are at 72 and 86.

 

The SPY chart you show marks out almost exactly the trade I'm currently in. My short legs there are at 143 and 158. So, pretty much you're right on. With the current market conditions I'd say they're pretty much right on for doing these iron condors. We're seeing very whippy, volatile action without any real direction. ICs are directionless plays.

 

So...it is really that easy. You could certainly "leg into" an IC if you wanted, by selling a call vertical when price is at the top of an area you think it will respect, and then wait for it to venture down to the bottom to enter a put vertical and complete the IC. I tend to enter them all at once when market conditions warrant. If the market is trending like it was last year and half of this year, I'd be looking just at selling put verticals since the odds were with the market to go up.

 

Anyhow...you're seeing things right. The R/R really SUCKS on IC's, but the probabilities really play in your favor and as long as you know how to manage a trade and have a plan of attack when price gets to a S/R level you're watching...then you'll do fine.

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IWM 70/72/86/88 IC was put on for a .58 credit / 36.6% ROI. I will be doing all my IC's at 40-50 days out, and this was 44 days out. If price comes down to 75 (using a 2.5 ATR) then I'll look to cover that put portion.

 

iwm_decic-20071108-100018.jpg

 

I've taken off my 158/161 call spread at a .02 cent debit, for a total of .35 credit. That was a risk of 2.63, or a 13.3% ROI. Right now, price is falling, tho not drastically. SPX is down 2 points this morning and I expect some chop around after the selloff yesterday.

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Phew...what a day today. Had me sweatin'!! haha Well, that 1450 level was supported big time this afternoon as buyers came in and swept the market off it's feet. Price is still under my really sweet spot, but within the range it needs to be. I hadn't been a part of what appears to be a shakeout before. When I was trading spreads before it was in a relentless uptrend that lasted months and months and months.

 

http__www3.stockfetcher.com_-_stockfetcher_2.0_-_preview_edition-20071108-173358.jpg

 

Looking forward to price rebounding a bit tomorrow...and hopefully vol will drop off a bit and I *might* close out the positions depending on what I see for debits to close.

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Well, this isn't always a fun thing to have to talk about...got stopped on my put spreads from the SPY iron condor. My short strike was at 143 and 141 and after yesterdays closing action after trying to mount a relief rally during the day...I decided it'd be better to cut those trades loose now rather than risk the loss. I always want to close out 4-7 days prior to expiration anyhow, and this was the 4th day prior to it, so my rules would dictate me getting out then anyhow.

 

So, close the trade and when combined with the credit given from the call spread, I ended up losing a penny per contract. Basically break even. Sucks to have to wait for a few weeks to pass and then you get nothing. BUT, it's better than getting a big loss.

 

spy_nov_closed-20071113-101923.jpg

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Hey Tin:

 

What's the advantage of an iron condor over and iron butterfly? An iron butterfly is essentially a combination of a long straddle and a short strangle. If I am looking at it right, the yield curve is about the same.

 

Thanks,

 

Bam-Bam

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Right...I don't know that there is a difference. More people just know about condors and iron condors rather than iron butterflies. Could've been the other way around, I suppose, too. Both IB and IC have wide sweetspots whereas a regular butterfly will have its max profit at a specific price. I really just like a couple different strategies rather than learn the myriad of them. ICs and regular verticals, calendars and just learning about diagonals. I'm cool with not having to guess the exact direction or strength of the directional trade.

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Also just got filled on a call vertical that I sold on SOLF for 40 cents, 17.6% return with 76% probability based on the vols.

 

solf_callvert-20071116-154316.jpg

 

It's a DEC and any close under the top of that range we've got will give me max profit. Note, too, IV is really pushing high. These folks report earnings on Tuesday and right now it's looking like "smart money" knows what those earnings are gonna be and they want to be poised for taking it lower. When the report is released and vol gets crushed even if earnings are good I won't get hit too hard with it. High odds setup here.

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Covered some positions today. Seeming how theres still 30 days left till DEC expiry and I get nearly my max profit...I'll take that. And actually....now that I look at my statement...I got out of that one at .02, NOT .04. Gotta love smart routing.

 

SOLF is working well, too.

 

chart_station_-_parallels_desktop-20071120-150252.jpg

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I'm going to bump this ancient thread :o

 

Here is a chart of the SPY, obviously price has dropped substantially since this thread originated. Tin, what would you setup for a credit spread in this instance?

 

Maybe July 132/133 (but these are nearly worthless) and July 119/118 puts. Would that be on the right track?

 

attachment.php?attachmentid=7248&stc=1&d=1215213440

 

Also Tin, do you know where on TOS (or anywhere) where I can get tutorials for using their software?

EDIT: NVM, figured that part out :)

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Hello,

 

I've been testing this strategy last few weeks, on weeklys. Here are the rules I followed:

1. Must be an ETF (during testing phase)

2. High level of liquidity and preferably penny bid/ask spread.

3. Min credit 4%, max 10% - to limit risk.

4. Spread must of beyond near-term resistance level. The stronger the better.

5. Spread must be at least 5 strike prices away.

6. During testing phase, ticker price must be more than 100$. This is to get choices for every 1% change in

 

price. Gradually shift this limit to 50$.

7. Wrote a program to find the price move of the underlying beween ticker price that time of day and closing on

 

expiration for last 1 year. Out of 52 instances, max 3 or 4 instances should have resulted in loss. (Thinking is

 

- in those 3-4 instances, volatility would be so high that I would be able to go way way far OOTM to get other

 

criteria met, so they may not result in loss).

8. Never initiate a new position in last 2 days of expiration.

 

Only SPY met all these criteria. And with decent levels of volatility last month, this worked out well.

 

But this last week volatily crushed dramatically, forcing me to explore other avenues. So did two things:

1. Bought 22.5/24 June VIX call bull spread for debit.

2. Bought SPY, LVS, PCLN reverse IC (Debit) this Thursday for next Friday expiration.

 

Here's my thoughts on them, would appreciate inputs/comments/criticism:

1. High beta (yes, I am debating my tell on SPY - probably wouldn't repeat it)

2. Low VIX days. (Switch to selling Vertical spreads in moderate/high volatility days)

3. Opened those positions Thursday morning, may be should wait until Friday (to take initial fluctuations in

 

options prices off) or even Monday (to void weekend's theta decay).

4. Premium paid must NOT be more than (I am thinking) about 50%. I spent 58%, 59% and 64% - which look on higher

 

side. Any suggestions?

5. Need to look at charts and do some technical analysis to assess probability of high movement in underlying.

6. Check the program to see average price moves in last 52 months for this trade to be profitable statistically.

7. Actually, check how this could work in moderate/high volatility market. I suspect volatility would drive prices too high for this to have the trade enough juice left for profitability.

 

Did quite a bit of reasearch on this, aint' getting much. I'm reading Sheldon Natenburg, and the guy is just

 

great! Difficult with full time job though. If anyone has any suggestion /good presentation/video... on subject,

 

please do share.

 

Please do share your ideas on what other criteria should I consider in chosing reverse IC in this market. Or at least criticise to tell me where you think I am making mistake.

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For those of you with full time jobs that want to trade the Iron Condor, check out

 

7minutetrader.com.

 

They do weekly spreads on the S&P 500 Index (SPX). For a $50/month they will tell you the weekly setup for a credit spread reward/risk ranging from 6% to 14%/week.

I use them for my non daytrading portfolio.

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