March 8, 2016 at 10:51 am #4867
I’m gonna post here the same question i posted in the chat.
Going over my old trade, i discovered i didn’t perform as i should have in iron condors and income trading. Beside one position going against me (and it happens, and i can accept it), most of it is due to poor execution.
I tend to chase the market maker to get the fill, in particular for the exits. This happens a lot when the market is going against me (example: unbalanced iron condor, you get out of the put side which is full size, and the half size of the call run against you without you having the possibility to exit).
This is mostly tied to emotions, because i usually take the same trades posted in the forum (even if i try to enter and exit on my own) and i see that the right fill usually comes “after” – maybe a few days later -.
And this is strange, because when i trade in a directional way, this doesn’t happen. Even when i trade with a very high leverage (i trade forex at x100, commodities at x50) i don’t have that very same feeling.
Every advice here is highly appreciated. I might add that, along side the current framework to build an iron condor, a framework for exits would be really cool, even tho I am not sure that something like that is doable.March 8, 2016 at 10:54 am #4869fazParticipant
I find if you should have in mind what you expect to receive and if you dont get filled at that then leave it..
e.g. for a delta 10 put spread i would not expect less then 0.8 and similarly for a delta 10 call i wouldn’t expect less then 100… etc.
FazMarch 8, 2016 at 11:01 am #4871
Here is my problem: what i “expect” to receive to me is a bias. And i don’t wanna trade with biases, cause they kill more than smoking.
I’m not sure if this is a difference between delta neutral position and directional trading, but it feels like “oh, i’m in profit on my long, but i think it will go higher so i won’t move my stops”, and then you turn a winner into a loser that way.March 8, 2016 at 11:24 am #4875fazParticipant
its not a bias. You should expect that because it is the risk/reward the market is giving you.. You can try to buy/sell delta 10 put or call spreads any time and they will be priced close to the numbers i gave..
There is a big difference between directional as delta neural positions imply you do not have a bias or opinion other than is the theta enough to harvest over the next few weeks given the hedges/adjustments you might need to make.. and any adjustments are done almost mechanically on deltas or p&l or %
For the im in profit in my long so wont move my stops — i think you mean the one side is under pressure and the other isnt. you can kind of tell if you should move or do something else by the premium left in the profitable side. If there is not much left then it wont hedge much and maybe you should do something that entails considering the worthless side.March 8, 2016 at 11:26 am #4876Steven PlaceKeymaster
Couple different things here.
1. If you come from a forex/commodities background, you are much more used to liquidity. For example, the EUR/USD is one of the most liquid trading vehicles on the planet.
With options, you have liquidity split up against different durations, different strikes, and calls/puts. This causes the bid/ask to widen out a little bit more.
If you think about it… the ES futures has a tick size of 0.25. That’s a bid/ask spread of $12.50. So when you look at the SPX options board it’s no surprise to see slightly wider bid/ask spreads because if the market makers need to hedge quick they can easily incur slippage.
It’s just the nature of the game in terms of liquidity.
2. With iron condors, liquidity is also a function of where the market is moving.
Think about this scenario. If the market is ripping then people start chasing by buying calls. That means it will be tougher to buy calls and easier to sell calls. Same goes for call spreads.
If the market is selling off, then it’s easier to sell puts than it is to buy puts. Same for put spreads.
That means if you’re trying to close call spreads, it will be easier to do when the market is selling off vs. rallying.
And if you’re trying to close put spreads, it will be easier when the market is rallying not selling off.
There is some merit with the idea of legging out of a trade simply because of liquidity advantages.
More notes to follow….March 8, 2016 at 6:53 pm #4909
To answer to faz: saying “I will do X% on the capital at risk” is a bias in my opinion. But i repeat, maybe delta neutral trades have to have this bias. I’m not talking about it regarding one side of the condor when i say I’m not gonna move my stops: I’m talking about a directional trade, like being long aapl or short audusd. If I don’t move my stops accordingly to the structure because i have a bias regarding the POTENTIAL profit of my trade and i’m afraid to be stopped out, I can easily turn a winner into a loser.
To answer to Steven: good point regarding the liquidity of a single side tied to the direction of the market. This also explains why do I need to chase to exit the threatened side. I’m gonna wait for the other notes 🙂March 21, 2016 at 10:41 am #5078
Ok. Now i’m gonna refer to this trade, which is the spx condor for april.
I have got out of the put side at .10 cents, i had orders out and to be honest i don’t think was a bad move. I could have made another 5 cents, but trying to push for that was i think a useless effort.
Now i have only the call side, and this is the situation:
Max delta is 27 delta. I feel like i’m exposed to upside risk, with a 27 delta at BE point.
I could do several things:
1) add a 1975-1965 spread here cutting 10 delta, and add a may call of another 10 delta to get almost neutral
2) only add a 15 may delta call
Beside the technicality of the choice tied to how you wanna manage an income trade, I feel the urge of selling puts here. And i don’t know if it’s a good idea, or an idea tied to my current emotions – cause right now i also have the bias of this thread, so I really don’t know the reason behind my idea, if I’m really thinking about it and i’m rationalizing my emotions or not -.March 22, 2016 at 8:59 am #5089Steven PlaceKeymaster
Is it possible to sell higher striked put spreads to help reduce your net delta? Sure.
But if the market rips even higher, then that delta goes away and the delta on the short call spread continues to be a risk.
And on top of that, you add downside risk. And you want to sell those spreads after the market is up 4 days in a row and actually starting to look a bit overbought here.
If/when the market pulls back, *that* is when it makes sense to resell some put spreads.
You want to sell put spreads into weakness and call spreads into strength.
Keep in mind, it’s completely normal to feel squeezed here. Since the original entry point, the SPX is up 100 handles higher without any kind of reversion whatsoever.
We anticipated this by going half size on the call spread side and then rolling/adding once we got further upside action.
If you really, really need a hedge, then buying some calls a little further out in time makes sense. Knowing your situation you could also pick up some SPX CFD’s for a straight delta hedge.
As for me, I’m keeping myself exposed with short deltas because I’m comfortable owning those short deltas into 2050 on the first test.March 22, 2016 at 12:17 pm #5099
Thanks for the reminder of getting in the put side on weakness and in the call side in strength.
I would ask if you would add into a support level or into a specific delta or into a mix of both, but that is a question for another type of topic.
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