5. Stephen, you mentioned you didn’t quite understand my note on “Am I missing something? I read you need at least 10 lots to have SPX or SPY hedges work effectively – with e.g. 5 lots you end up hedging with long options which are too OTM. Is this true?”
Pretty sure that isn’t true. If you have 10 iron condors you can hedge with SPX, but less you should go with SPY.
Your strike selection should be pretty consistent any time you put on a hedge. I wouldn’t worry about the option being too OTM– just make sure you’re actually cutting down your NET delta.
7. I should aim for 1.5x initial credit as my Maximum Allowable Loss (MAL).
Question – this is true regardless of what profit level I take out the IC, right? For you it is 50% profit level and for me I get out at 35% profit. With this 35% profit rule, I still use 1.5x initial credit as my MAL, yes?
So you’re not actually using our strategy if you’re always getting out at a 35% profit.
Our goal is to exit with 50% credit in 30 days. Now if we can get, say 15% in a week, then we’ll close and move on to another
Another question – do you guys take out profit at 35%? I currently sell my put spreads at 16 delta and call spread at 10 to 12 delta. Given that I get more premium on the put spread side, I try to exit at 35% profit, as opposed to IWO’s approach of 50% profit. What do you think of exiting at 35% (may or may not be good – I get out of the market faster but also end up incurring more commissions).
Frankly I think closing at 35% credit everytime is stupid– you don’t end up getting paid for the risk you’re taking on. Try following our strategy EXACTLY instead of making modifications of your own.
If short call delta side hits 20, I hedge with a long SPX or SPY option. So I will exit if the underlying price ticks up “25 to 30 handles” more? When you say handles you mean SPX points, yes?
Yes. 30 points of upside on the SPX