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Will you be sending out Emails for all of the live sessions? Thanks Paul
Yes.
Each meeting comes with an invitation
I have not finished your book OFR book; however, do anticipate on providing education on to to select the best option strike based on volatility and the Greek? Will most of the trades be Iron Condor versus just buying Puts or Calls? Being new to options and trying to grasp Iron Condor is a little bit out of my league.
Thanks Michael.
Michael,
There is no ‘best’ option to trade. Each trader may have a best, and I plan to help you find that best option. It will not be the same options for everyone.
Yous specific need play a huge role in that decision. I know many gurus recommend specific trades for all clients, but to me that is not a good move. If I were (and I will not) to recommend trades for you or any other member, I would want to know all about your financial condition, your age, you need for cash in the next 5 years, your retirement plans, your tolerance for risk, how much money you plan to earn using options, how important is it to protect the assets already owned and on and on…) How else could I know the type of trade that suits you? How can I know which greeks are important to you and just how much risk you want to take?
I agree that starting with iron condor is not a good place to start. I’ll choose a covered call as my next trade because that is a much better staring place for the rookie trader.
Mark,
I am not looking for recommended trades but would like to learn how to identify trades with the best risk to reward ratio. Let’s say I am bullish on stock XYZ and I want to buy calls. How do I identify which strikes using delta, theta, gamma, vega to buy? I read that front month are not good. Sometimes I hear a strike is not good or not good because of theta or gamma. What makes it good or no good?
Thanks.
fortune8,
That requires a very lengthy discussion. It depends on why you are bullish and what you expect to happen. And when.
The answer is not that simple.
My bottom line is that I don’t like the idea of buying options as a speculation. I find it too difficult to prosper. Thus, I always recommend buying ITM options. They don’t have to be FAR ITM. But the delta should be 70 to 80 – again in my opinion as a person who does not like this strategy. Stay away from cheap OTM options. They can offer a spectacular reward, but are much more likely to result in a loss.
In that scenario, there is no harm in owning front-month options because the time premium is small. However, the longevity of the option must depend on what you expect to happen. Being ‘bullish’ is not good enough for picking which options to buy.
Hello Mark:
As a new subscriber, I have some questions. I have been trading stocks,options and futures for 30 plus years but I am still learning and wish to refine my trading. With that in mind, I have the following questions:
1. In your years of trading iron condors, as a rough percentage, how many have required adjustments before closure?
2. If the percentage is over 50%(which in my trading I have found to be true), would it make sense to establish initial protection in the form of a kite based on current trend(moving average determined at time of trade initiation)?
3. Can a kite established at initiation of trade on a break even basis(premium on sold options equal to single option bought) provide enough initial insurance to be worthwhile?
4. At what point in your experience should an iron condor requiring adjustments be closed out in lieu of further adjustments?
Looking forward to your insights and further learning through your site.
Thank you.
Jacques Frottier
Bonjour jacfro,
1. Certainly more than half. But that’s a difficult question: It rally depends on when the trader decides to make that adjustment. I began by waiting until the short was ITM before adjusting – and quickly decided that was not viable. Now I am willing to make a partial fix when the short (RUT) option is 25-30 points OTM. Thoughts: If I cannot have an easy and big winner (i.e. no adjustments), I’ll take what I can get and cut risk early.
2. Conditional yes. It’s great to buy kites early. They are inexpensive, and the kite is one way to profit from a move. The problem comes when holding onto that kite because the iron condor still needs protection.
The big flaw with kites is holding too long. They are fine for what they do – but profits should be taken when the kite greeks look unfriendly – and do something else to protect the iron condor. Perhaps reduce size, perhaps use the kite profits to buy some call (or put) spreads.
3. I don’t believe so. I don’t have the facts to back this statement. I have never been able to a kite for no debit – and still have an acceptable risk level. However, if you build the initial trade with the embedded kite, then then entire position can be opened for a credit. That means kite plus iron condor. It limits profits but certainly cuts risk.
4. In my experience, and using my own comfort zone: When the adjustment is not good enough to give me a position I want to own, I just give up. I’d rather take the loss and begin a new trade, rather than fight to keep the old position alive when I cannot build something good. To me, the killer is the big loss. The rest of the game: small loss, and any size profits are all part of a winning traders game. It’s the big loss – a loss that could have been prevented by sound risk management – I’m not referring to a down 20% opening where you are not prepared – that must be avoided.
Thanks Jacques.
Much of this is a work in progress, and I;ll be making changes as we go along.
For me, usually two. But that is becasue I tend to adjust early. Someone who waits until the short option ITM before adjusting would probably make no more than 1 – and perhaps – with the exit being the first and only adjustment.
2.
Thanks for the detailed response to my questions.
I have two additional questions:
1. If insurance is desired, would an initial kite in the near options for a two month iron condor be the least expensive and effective?
2. Could a kite be established in near term options for a three month iron condor with the intent of rolling the kite to the second month if iron condor has remained profitable?
Thank you again for your assistance.
Jacques
Jacques,
I have not looked into this, However,
1. Time kills kites. I strongly advise against owning them as protection against options that expire at a later date
2.Yes. But I believe the time decay from the kite would exceed that from the iron condor. I know you could afford do buy options with excellent strikes – but I ‘feel’ (no evidence) that theta would be too costly.
An interesting project for a paper account – if you have the time and patience.
Regards
Jacques,
The front-month kite requires further consideration.
I must look into that.
Thanks
Mark,
Can you please help with the topic of return on investment, when trading options? I will use an example.
Let’s assume that some years ago I started with $100,000 cash and invested 80,000 in stocks and the rest stayed in cash.
In January 2010, the stock portfolio had increased to 150,000 and the cash to 50,000 (no additional money was added to the account all this time).
In January 2010, i decided to trade iron condors and during the year I made five trades.
Trade 1 (opened in Jan, closed in Feb): max risk 30,000, actual profit 1,000
Trade 2 (opened in Jan, closed in Mar): max risk 25,000, actual profit 500
Trade 3 (opened in Mar closed in May): max risk 15,000, actual loss 5,000
Trade 4 (opened in Jun, closed in Aug): max risk 20,000, actual loss 1,000
Trade 5 (opened in Sep, closed in Oct): max risk 35,000, actual profit 9,500
What is the correct way to calculate the ROI for the whole year (2010), as far as the option trades are concerned, in the above example?
If some information is missing to make the calculations, please feel free to assume anything you like.
Thank You
Dimitris
Hello Dimitris,
My personal premise that that it is acceptable to keep books in any manner that makes you feel comfortable with the data. However, I have a strong bias towards doing it only one way – and I’ll share that in my response.
Separate blog post. Will publish as soon as I finish.
Regards