GOOG Weekly Condor

[cwelsh 1,549]

In the same vein of the AAPL weekly trades, I just SOLD the weekly GOOG:

650/655/705/710 for 0.52.

Again, PLEASE go read my other posts about these trades to understand the risk involved, the position sizing I use, and so forth before entering. Yes, I've had about 50 of these in a row give me 20-50% returns in three to five days. But I also have had 3 in the last year hit a 55% loss, a 60% loss, and a 90% loss. I've also had about 10 trades that very between -5% to +5%. That's still a very nice positive rate of return, but only with appropriate management.

Do not post to me in anger if you lose 90% twice in a row on these weekly condor trades -- it happens, and if you can't position size accordingly, and risk manage accordingly, DONT DO THEM. I don't mean to be harsh, but I want everyone to be well aware of the risks involved. Yes, they profit well over 90% of the time, but those times they dont......ouch.

[cwelsh 1,549]

One other comment, if you are trading these short condors, it is always a VERY good idea to have some sort of long gamma play on, so you can profit from a sudden move in the overall market (thus part of the reason I kept my SPY straddle open).

I also need to clarify:

When I say return 50% in three days -- that's not really accurate, as that's not on margin. If I earn "50%" on this trade, so I get to sell at .26, that's really only a 5.2% return on margin. When I say 90% loss -- I mean a 90% loss on margin.

So if you have a $10K investment, you make $520 (or up to $1,040 if you let it expire). You stand to lose up to $9,000.00.

Edited August 31, 2012 by cwelsh

[tjlocke99 18]

well said Chris. i have been heading your advice and staying clear of these

[cwelsh 1,549]

Mark just posted a very nice thread on this very topic.

Once you know what you are doing, and can position size accordingly, I would encourage people to take these (or this type of) trade. It has a place in every option portfolio. But you simply must understand the risks, position size accordingly, and establish something you're comfortable with.

Any TOS user, I encourage to paper trade along with any of my announcements and gain a feel for how you want to manage them, commission costs, adjustments, etc. It's VERY nice to have 50 trades in a row return 5% (or even 10%) on margin. The question comes, when you have that 80% loss, can you pull the trigger and close it instantly to prevent a 90% loss? And, what happens when you have two or three of those in a row....they tend to come in bunches. Investing in $10K blocks, if you had two 90% losses in a row, you would still be up overall, as long as your position sizing is consistent.

[Rogers 263]

Obviously commissions would come into play here.. Paying 1.25 per contract and making 50% doesn't leave much..

[Rogers 263]

Great information Chris.

I am seriously considering allocating a portion of my portfolio to these types of trades.

September/October are typically more volatile months, does seasonality play into your decisions or would you wait for the VIX to rise before being more conservative?

You mention having a hedge against large market moves, I usually do this with the earnings trades but when those are scarce do you employ other hedges?

thanks so much.

Scott

[Guest tkast36]

One other comment, if you are trading these short condors, it is always a VERY good idea to have some sort of long gamma play on, so you can profit from a sudden move in the overall market (thus part of the reason I kept my SPY straddle open).

I also need to clarify:

When I say return 50% in three days -- that's not really accurate, as that's not on margin. If I earn "50%" on this trade, so I get to sell at .26, that's really only a 5.2% return on margin. When I say 90% loss -- I mean a 90% loss on margin.

So if you have a $10K investment, you make $520 (or up to $1,040 if you let it expire). You stand to lose up to $9,000.00.

Chris:

When you say you have a $10K investment and your strikes are $5 apart, does that mean you are trading 10 contracts on the Call side and 10 on the Put side?

Thanks.

Tom

[cwelsh 1,549]

Chris:

When you say you have a $10K investment and your strikes are $5 apart, does that mean you are trading 10 contracts on the Call side and 10 on the Put side?

Thanks.

Tom

No, if I was trading $10K, one $5 spreads, I would actually have 20 contracts per side. That's because brokers (the good ones anyways) realize it's an impossibility to have BOTH sides of an iron condor finish in the money -- so your margin is only one side.

In other words, the margin requirement for a vertical call is the SAME as for an iron condor, even though also have a vertical put spread.

[cwelsh 1,549]

Great information Chris.

I am seriously considering allocating a portion of my portfolio to these types of trades.

September/October are typically more volatile months, does seasonality play into your decisions or would you wait for the VIX to rise before being more conservative?

You mention having a hedge against large market moves, I usually do this with the earnings trades but when those are scarce do you employ other hedges?

thanks so much.

Scott

That depends on what other trades I have open. I have several different risk management measures, but essentially I want to make sure at least HALF of my short ICs (such as this GOOG trade and my last AAPL trade) are hedged by either (a) IV trades or ( other trades such ones involving the VXX or SPY calendars or the like.

I never like having just one strategy on. Yes having multiple inversely related strategies will lower your performance in good months, but it REALLY helps more in bad months.

[Rogers 263]

The TOS scan doesn't seem to show weekly spreads for me. What tool are you using to scan these? Or is it a manual process?

[tjlocke99 18]

That depends on what other trades I have open. I have several different risk management measures, but essentially I want to make sure at least HALF of my short ICs (such as this GOOG trade and my last AAPL trade) are hedged by either (a) IV trades or ( other trades such ones involving the VXX or SPY calendars or the like.

I never like having just one strategy on. Yes having multiple inversely related strategies will lower your performance in good months, but it REALLY helps more in bad months.

I remain reluctant to trade ICs on American style options both because I am too new to the options world, but also because I fear a crash, flash crash, or massive increase in the market or underlying where I get assigned and the underlying changes so quickly that I get wiped out. I assume the algorithmic traders would have trades auto-executing, and I'd have no chance.

[Guest listolyman]

I was considering this trade today. The price seems to be a tad lower than Chris's entry on friday. The bid ask is wide(.60/.25) which looks like a possibility of .45-.50 is doable. When considering a $1k position at .50 credit then it would require 20 contracts * 4 legs for a total of 80 contracts to enter. At an avg IB cost of .80/contract then the cost could be $64 to enter and $64 to exit. With commissions at $128 total then a profit of 12.8% is needed for B/E. Since costs fluctuate then it could cost $1/contract for a total of $160 and a B/E of 16% needed. I assume that these lower dollar trades are best exercised at a different broker than IB since the risk seems way too high.

Edited September 4, 2012 by listolyman

[Dawajmeister 43]

I entered on Friday for a .50 credit and sold yesterday for .25... Nice Unfortunately I was was trying to get filled at the end of the day and only got 1 contract.

[cwelsh 1,549]

The TOS scan doesn't seem to show weekly spreads for me. What tool are you using to scan these? Or is it a manual process?

It's part manual and part automated -- I have a series of spreadsheets that imports historical data, then sends that over to my SD calculation sheets. I have to change the ticker symbol and review the SD calculations on each stock.

One day soon (if I can ever find the time), I'm going to write a program that will just screen for me, but have not had the time to yet.

[Victor 5]

It's part manual and part automated -- I have a series of spreadsheets that imports historical data, then sends that over to my SD calculation sheets. I have to change the ticker symbol and review the SD calculations on each stock.

One day soon (if I can ever find the time), I'm going to write a program that will just screen for me, but have not had the time to yet.

Chris,

I am starting on a project to write a program that will help me decide on these earnings trades as well as help analyze other opportunities. I have seen you mention using spreadsheets to obtain and feed data. Do you think having the data in an SQL database and accessing it from there would have advantages over the spreadsheet approach?

Also, unless it's proprietary info, do you use excel to record ToS data over time? I'm wondering this, because I have thought about implementing it, but not sure how practical it is.

Thanks in advance.

[Kim 7,943]

Chris is out of town but he asked me to update those in this trade that he closed it at 0.50.

[Dawajmeister 43]

I'm going to hold off this week on this, due to the big jumps in Goog yesterday and today..