Tag Archive | "iron condor"

Q3 2010 Condor Options Performance Review

Monday, October 18, 2010

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In addition to the regular performance data, I have a couple of interesting items to comment on for this quarterly review. First: for anyone who thinks that global equity markets may have some choppy periods ahead, this is an excellent opportunity to start thinking seriously about the role non-directional strategies should play in your portfolio. Second: we’ve added a dynamic delta hedging component to the newsletter to improve the purity of our volatility trading and to reduce unwanted…

Guest Column at Barron’s on Volatility and Iron Condors

Wednesday, September 15, 2010

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I was asked to fill in over at The Striking Price while Steve Sears is away, and my column appeared there yesterday. I discuss the volatility risk premium and how to capture it using an iron condor. If you want to know more about the volatility (or variance) risk premium, in my view the best place to look is the Carr and Wu article from 2009. One take-home point from my column is that this premium is really…

Double-Diagonals Have You Seeing Double (Margin)?

Thursday, June 24, 2010

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When some brokerages calculate margin on complex option spreads, they don't allow for the fact that it's impossible for an out-of-the-money bull put spread and an OTM bear call spread on the same underlying both to expire at maximum loss—so they withhold margin on both spreads independently. Options-centric brokers (like the ones who autotrade our newsletters) don't require double margin on a balanced iron condor or butterfly (i.e., where the vertical spreads are equal and all contracts have the same expiration date)…but thanks to a regulatory crack-down in the wake of the 2008 credit crisis, it's increasingly likely that any deviation from a balanced iron condor or butterfly will cost you margin on both sides…

Q1 2010 Condor Options Performance Review

Wednesday, April 14, 2010

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The iron condor newsletter returned about 4.3% in the first quarter this year, slightly beating the 4.2% return for the VTY benchmark. The newsletter did not outperform the S&P 500 on either an absolute or a risk-adjusted basis, which, based on the prior history of this strategy, says a bit more about the market than it does about us. In the review for Q4 2009, I mentioned the most common misconception about iron condors, namely that they are…

The Allure of Deep Out-of-the-Money Options

Thursday, December 31, 2009

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For an options trader, one of the most remarkable aspects of the 2008 financial crisis was that it featured months in which many options closed in or near the money when, even weeks before, they were deep out-of-the-money (DOTM) and “worthless.” The lesson is that ostensibly overpriced options are totally devoid of value, until they aren’t. This is not a new lesson: academics have spent decades creating and testing different models (Hull and White, Heston, Dupire, etc.) to better accommodate…

On Gamma and Holding Positions Through Expiration

Wednesday, November 25, 2009

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One of the most popular posts I’ve written is “The Bucking Gamma Bull,” in which I said: Think of your deltas as a mechanical bull, and your gammas as the rate and intensity at which the bull throws you around.  The ride starts off quietly, but as time goes on the bull gets increasingly difficult to ride, and eventually you’re likely to be thrown.  That’s exactly what happens during an expiration week in which the underlying…

August Monthly Review

Tuesday, September 8, 2009

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The unrelenting August rally put some pressure on the call side of our iron condor positions. However, we were able to close out the month with flat-to-positive performance for the newsletter trades due in part to our ability to stagger trade entries based on volatility and delta exposure and to size positions on a risk-adjusted basis – both techniques that we teach on the members area of the site. We are nearing the end of the September expiration cycle and…

Iron Condors and Vertical Skew

Wednesday, June 17, 2009

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Member D. S. posed the following question: I’ve been trading SPY iron condors for some time now and I have been opening them at very similar levels to yourselves. However I have been using much wider spreads, so whereas you use a $2 spread I would use as much as a $10 dollar spread. What in your view is the value in only using smaller spreads? My reasoning on the larger spreads is as follows: 1) You can open the…

The Volatility Risk Premium in Index Options

Friday, April 17, 2009

4 Comments

Two academic papers recently discussed over at the CXO Blog provide some good analysis of the volatility risk premium in equity index options.  The volatility risk premium is just the difference between the realized volatility of the underlying and the volatility implied by options prices.  What numerous academic studies have found is that index options are consistently priced at a higher volatility than is realized over the relevant time period. “The Volatility Premium” (Eraker 2008) locates one source of…

Managing Greeks, Not Trades

Wednesday, April 15, 2009

2 Comments

Here’s an insightful comment sent along by long-time member B. D.: I have really learned so much about iron condor trading by seeing how you adjust the portfolio over time. If this month ends up about break-even, I actually think it will be one of your best months ever from a trading expertise perspective, given the huge short-term trend up. Some of the other iron condor newsletters that I used to read must be getting killed by putting…

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Jared Woodard specializes in trading volatility as an asset class. With over a decade of experience trading options and other volatility products ... Read More

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