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230 posts
msg #117985
Ignore wkloss
2/1/2014 1:58:30 PM


Have you considered using your Pangolin D to enter option trades? It has a high win %. Here is a trade example using data available from OptionVue as of 1-31-2014 at 2 hours before the close.

This uses SPY which was at 179.02. Go 1 standard deviation into the puts and buy 10 Feb 170's and sell 10 Feb 171's. Yield at expiration after commissions is $152 (8%) on $1850 at risk. There are 22 days to expiration. Break even is 170.85 at expiration. (I realize Pangolin D probably didn't issue a buy signal. This is an example of trade construction, risk & reward.)

You make money if SPY goes up as predicted by Pangolin D; if SPY stays the same and if SPY closes no lower than 170.85. You can adjust the trade if you are inclined to do so. If SPY closes below 170.85 at expiration, you hit max loss at 169.03 so adjustments are worth considering.

Another possibility is selling 10 177 puts and buying 10 176 puts. Max risk is $770 and max gain is $231 for a yield of 30% which annualizes at 498%. This could be a "no touch" (no adjustments) trade.

Trade construction is a matter of personal taste and risk tolerance. The key is starting with a system that has a high win %.


3,845 posts
msg #118108
Ignore Kevin_in_GA
2/6/2014 10:19:21 PM

Price changeSPY putsSPY calls
Price changeIWM putsIWM calls

Or you could try this - here are the historical failure rates for puts or calls set at a certain percentage above/below the Wednesday close. This data was compiled over the last 750 weeks (almost 15 years). The strike prices are based on the Wednesday close and by the following Friday they either are above or below the target.

Here you would do well just using 4% above and below the Wednesday close on the SPY, but would need to move to 5% above/below on IWM to match the same performance.

Iron Condors, anyone? Basically a 92-93% win rate on a directionally neutral trade with time decay on your side.

99 posts
msg #118114
Ignore jimmyjazz
2/7/2014 1:07:25 PM

You're proposing an iron condor on SPY at close on Wednesday that has inner prices at +/- 4% of SPY, correct? Two days later, you get a 92% or greater win rate?

The obvious question is how much greater are the losses incurred by the other 8% of trades relative to the 92% winners? If they're more than 11.5X larger, then you lose money over time, disregarding commissions & fees (which make it worse).

3,845 posts
msg #118115
Ignore Kevin_in_GA
2/7/2014 1:33:10 PM

No - 9 days later. The width of the condor is the distance between the sold put and the sold call. The "wingspan" is the distance between the sold put/call and the protective put/call purchased as insurance.

An example - the SPY is at 175, as it was on Wednesday. Your width would be from 175 * 0.96 = 168 to 175 * 1.04 = 182. So you sell at put at 168 and just in case buy a put at 166. The cost of that vertical apread nets you, say 0.35. For the other side of the condor you sell a call at 182 and buy a protective call at 184. This spread nets you 0.25 (numbers here are purely illustrative).

The "wingspan" (or maximum loss) would be $2 (the difference between your sold put/call and your bought put/call) - it is actually less than this since you make a small profit on one of the spreads if the other one is a loser.

In this example you would make 0.60 on $4 at risk (a return of 15%) if the condor expires as hoped. The maximum loss is still $2 minus the credit recieved. Since you expect this to be hit only about 7% of the time, you can adjust the wingspan size to capture more credit albeit at a higher amount at risk. But if you buy your puts/calls at 6% away from the current price the odds are strongly in your favor to not hit a max loss.

Jimmy - you know this stuff better than I as I have seen your posts on EliteTrader.

99 posts
msg #118125
Ignore jimmyjazz
2/8/2014 12:03:55 PM

Trust me, I'm a piker. Just trying to learn like we all are.

I'm skeptical that the numbers will work out, but I'll look at it this Wednesday. If I look at the FebWk2 96/104 (%) SPY iron condor right now, which is admittedly only 5 days out, not 9 as you have illustrated, the reward/risk ratio is awful. (I used a difference of $2 on each spread, as you did in your example.) The $170.5/$172.5 put spread look like it might net $0.05, and the $187/$189 call spread is essentially worthless (you might get a penny).

In my view, spreads bring all kinds of frustrations. They don't reach full value until right at expiration, and it can be maddening. I continue to work my way back towards long calls and long puts with high delta (> 75%) as a proxy for a stock I am either bullish or bearish on. I can exit those trades when my exit triggers, without waiting for expiry to book my gains.

I put on an AAPL iron condor this week when the underlying was at $504. My trading system had identified AAPL as ripe for a pop, so I biased the trade for upside, selling the $500 put and the $520 call, with $2.50 spreads outside of that. AAPL did exactly as expected (partially on news), and climbed ABOVE my $520 short call by midday Friday. I got nervous having that option in the money, so I exited that side of the condor at a loss.

AAPL ended up closing just under $520. Argh. Just so frustrating.

Please update us on Wednesday so we can see what you are proposing and calculate expectations. Thanks!

3,845 posts
msg #118126
Ignore Kevin_in_GA
2/8/2014 1:49:37 PM

Here is a modified filter for setting up these iron condors. Note that at these distances from the current close, there may not be a lot of money in the spreads, but this is designed to show safe zones, not really where profit might be maximized. That requires taking on more risk - like always, right?

set{SPY, count(close equals ind(SPY,close),1)}
set{IWM, count(close equals ind(IWM,close),1)}

set{4pct, close*0.04}
set{5pct, close*0.05}
set{6pct, close*0.06}
set{7pct, close*0.07}

set{buyput7pct, close - 7pct}
set{buyput6pct, close - 6pct}
set{sellput5pct, close - 5pct}
set{sellput4pct, close - 4pct}
set{sellcall4pct, close + 4pct}
set{sellcall5pct, close + 5pct}
set{buycall6pct, close + 6pct}
set{buycall7pct, close + 7pct}

set{SPYbuyput, buyput6pct * spy}
set{SPYsellput, sellput4pct * spy}
set{SPYsellcall, sellcall4pct * spy}
set{SPYbuycall, buycall6pct * spy}
set{IWMbuyput, buyput7pct * IWM}
set{IWMsellput, sellput5pct * IWM}
set{IWMsellcall, sellcall5pct * IWM}
set{IWMbuycall, buycall7pct * IWM}

add column separator
add column spybuyput
add column spysellput
add column spysellcall
add column spybuycall
add column separator
add column iwmbuyput
add column iwmsellput
add column iwmsellcall
add column iwmbuycall
add column separator

chart-display is weekly
chart-time is 1 year

The protective puts/calls are bought at 2% outside of the sell strikes - at that distance the likelihood of closing outside the condor is about 2-3% for SPY and about 4-5% for IWM.

A slightly riskier setup would be to move 1% inside on all settings. More money to be made, but the win rate goes down to about 88-89%.


640 posts
msg #118130
Ignore mahkoh
2/8/2014 6:51:05 PM

Consider SDS. Being a 2x ETF margin requirements are double, but at $30 that is nowhere near the margin required for SPY.

3,845 posts
msg #118131
Ignore Kevin_in_GA
2/8/2014 7:54:35 PM

Not sure I follow - why do an iron condor on a 2x ETF? The goal is low movement on the underlying.

3,845 posts
msg #118132
Ignore Kevin_in_GA
2/8/2014 10:12:40 PM

Also - the margin requirement for an iron condor is simply the sum of the difference between your bought and sold options. In the example above (where the strikes were about $3 apart) the margin requirement is simply $6 per contract ($3 per side).

99 posts
msg #118133
Ignore jimmyjazz
2/8/2014 10:21:45 PM

Not sure I follow -- unless brokers have different policies, the margin requirement on an iron condor is the same as the margin requirement of EITHER spread placed independently. Margin requirement doesn't double when you add the 2nd spread.

Did I misunderstand you?

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