Iron Condor Subtleties

Ben had some questions and background information:

Hi Mark,
I actively traded iron condors since May. I have been trying fair high probability condors (4:1 risk to reward) on NDX, SPY, QQQ, VOD & AMZN, with expiry dates ranging from July to October.

I thought things had been going reasonably well but struggle to reconcile the ‘performance’ summary on the CBOE paper trading account to my account value. I spent the evening exporting all of this data to excel and preparing my own spreadsheet and it turns out I have made a small loss of around $1,000 so far. This isn’t a huge surprise as i have had to roll a few condors and experimented with kite spreads and call spreads as adjustments when the short strike has started to be approached. In particular I have had quite a ride with AMZN, i’ve rolled the call spreads twice.

Today I have closed my NDX and QQQ (yet to be filled) positions as NDX is a July expiry and though QQQ is an august expiry, gamma is getting too high and I had made around 70% of the possible profit. Why be greedy when gamma could blow it all away quickly.

I have rambled on long enough, consider up to this point to be just background information please and I will get on to my questions now.

1) I think I have spent a lot on commissions and fees (around $2,000 so far) and for my SPY and QQQ. It’s cost me about 10% of the opening credit to open the positions. I understand that this is due to the high number of contracts traded, 100 and 200 respectively, coupled with the relative ‘cheapness’ of the options sold, $19 per SPY contract and $20 per QQQ contract. The longs and shorts of both if not all of my positions are one strike apart (SPY Aug puts 146/147 calls 172/173, QQQ Aug puts 64/65 calls 78/79). Is there anything I can do to reduce the relative value of commissions and fees?

I know that I could increase the distance between my longs and shorts to say 2 strikes but this is not wise as its effectively selling all the spreads in between the long and shorts, i.e., i’d be selling the 78/79 call spread and the 79/80 spread if i widened my QQQ calls to 78/80 in future condors. For this reason it doesn’t appeal as a solution.

Alternatively I could be open lower probability (therefore higher priced) positions, this would reduce the number of contracts I trade and commissions would reduce relatively. I don’t like this solution much either as am already making enough adjustments as strikes are coming under threat with my high probability approach. I may experiment with this in the future but for now im happy with the higher probability/lower reward condors.

Perhaps there are other indices I could trade which are more expensive?

You may well point out that i’m not trading any RUT options despite these being a favourite of yours. This leads onto my next question, which may actually be better directed straight to the CBOE website…

2) I can find option quotes for RUT on the CBOE paper trading account but it doesn’t seem to work. The website does not give a quote for RUT itself and as a result the platform does not give any probabilities, R/R or greeks for any RUT options. In fact im yet to even have a fill on any RUT orders. This is surprising as I though RUT was solely listed on the CBOE exchange. I could open a paper trading account at another website but im loathe to lose all of the data and history i’ve built up so far. What do you suggest I do here please?

3) I’ve experimented with single equity options (such as AMZN and VOD) as per my introduction. Though the premiums collected are juicy they are certainly the condors that have required the most attention and adjusting. This is probably the reason premiums are so good, single equities are more volatile, even the mega-caps. Are there any European style, cash settled, liquid ETFs which i can trade options on or are all ETFs equity settled American style by definition?

4) The least important of all my questions and one you can feel free to avoid completely but I thought i’d ask anyway. Much further down the line, if I can prove myself to be profitable and a good risk manager I may start trading small with real money. I’m a UK citizen and resident but the American options environment is just better. It’s more liquid, there is greater choice of underlyings and importantly much more competitive brokers. Do you know if a UK citizen can open an account with an American broker and trade your options?

This post has gone on far too long and if you have made it this far I thank you. Any input you can give which you feel would be useful will be greatly appreciated. If you have any questions for me or need any further information please let me know. I could provide the spreadsheet if wanted.

Thanks again


Hello Ben.

1) Commissions should not be uppermost in your thoughts, but giving up 10% of the premium is far too much.


    — First, call your broker and ask about commissions. If they will not offer a better rate, look for another broker. But even better, following the two suggestions below may reduce commissions by 90%.

    — Instead of trading 100 one-point SPY spreads, trade 10 SPX 10-point spreads. Bonus: No dividends and no early exercise.

    — Instead of trading 100 one-point QQQ spreads, think about trading four 25-point NDX spreads.

Comments: Size is not determined by the number of contracts. To trade iron condor positions of equal size, the margin requirements should be the same.

    — I hope you are not trading 100-,lots of Amazon. If using 10-point spreads, 10 spreads is the correct trade size. If using 5-point spreads, then 20-lots is the right size.

    — I hope you are not trading 100-lots of NDX. Just 4 of the 25-point spreads is equivalent to 100 QQQ one-point spreads.

2) RUT has become a strange beast. To get market data requires payment of a small monthly fee. If your broker cannot supply the data at no cost to you, then you can do without trading RUT for now. If and when you begin to trade with real money, and after you know that you are making money with the iron condor strategy, that is the time to think about adding RUT to your group of underlying assets.

I don’t know why you have no fills, but if you want to test the system, you can always trade ONE LOT of a 5-point iron condor by sending in a market order. NOTE: This is only a test and should never be done with real money. But with a paper-trading account, you can send in the order and see just how bad the fill price is.

I know you want to keep all data collected to date. However, at some point you can declare stage one to be finished and begin stage two. That should be done with a clean slate and therefore it is okay to move to a new web site to trade.

Keep the numbers from stage one, but it is acceptable to separate the next stage in your trading career from the first stage.

3) Single equities tend to be more volatile than a group of stocks, such as an index. But that is only true for higher volatility stocks. Unless you develop a special affinity for trading specific stocks, I recommend index or ETFs – but only because diversification means less volatility and no chance that bad news will destroy an entire index as it can a single stock.

I don’t know about ‘by definition’ but ETFs are American style and settle in shares. I suppose cash settled ETFs may exist and will exist, but I do not know of any.

I found this quote online, but do not know the date of whether these puppies were ever created: “The International Securities Exchange is planning to offer cash-settled, European-style options on certain exchange-traded funds and equity securities.” Write to the ISE and ask.

4) I do not know about UK citizens, but people in Australia and parts of Europe do have accounts with American brokers and they do trade US markets. Try to fill out an application at and see whether you are allowed to complete the application. Or send e-mail to several large brokers and ask.

***DO not forget to ask if there are any restrictions for non US citizens.

— Locking in profits by exiting early is a sound idea. Nothing wrong with taking 70% of the maximum

— Negative gamma can produce lots of heartache. Nothing wrong with conservatively exiting positions when negative gamma begins to feel uncomfortable.

— It is always a reasonable decision to take a loss and exit. My advice is to roll only when you really want to own the new position. It is would already make you uncomfortable as soon as the roll is made, then do not roll. Take the loss and move on.

— Unless you make a habit of owning positions into expiration, then do not roll when time to expiration is short. That ‘short’ time is impossible to define because it depends on the expiration time of the original trade. If you trade 45 to 60-dat iron condors, then I encourage you not to roll when less than 3-weeks remain to expiration.

Good questions and I wish you well.

12 Responses to Iron Condor Subtleties

  1. Lies 07/12/2013 at 4:02 AM #

    I live in Belgium and i have an account with Interactive brokers (UK). They are the cheapest.

    Thanks Lies. It’s nice to hear from you again.

    • Ben 07/12/2013 at 8:20 AM #

      Hello Lies, do they allow you to trade American options like SPX & RUT? Are there any restrictions or problems with you doing this as an Belgian resident?

      Hello Mark, thanks for your full and fast reply. I have had a quick read through but need a little more time to fully absorb it. I hope to reply properly as soon as I get a chance.


      Take your time. There is no rush

      • Lies 07/12/2013 at 12:56 PM #

        Yes, i can trade SPX, SPY,… No problem.
        But, because my currency is Euro i prefer the Eurostoxx 50. Not as liquid as SPY, but 1 million contracts a day is not bad.

  2. Chris-O 07/14/2013 at 8:14 AM #


    I live in Holland and use TD Ameritrade platform Think or Swim.
    Love their analytics but I would really need to trade bigger size.

    They have a flat rate of 10$ per trade plus 0.75$ per contract.
    Interactive in Holland would charge me 2.4$ per option without a fixed trade charge.


  3. Esa 07/16/2013 at 1:35 PM #

    Dear Mark,

    first of all thank you for your blog and all the information, ideas and thoughts you share here!

    I have a question regarding your books and hope it’s okay when I post the question here. I live in Finland and would be glad to purchase your 2nd edition of the Rookie’s guide book. I was wondering whether you have it available from anywhere else than Amazon? Maybe in pdf or e-book form? Amazon’s shipping rates and times to Finland are what they are so I’m just thinking through my options.

    Best regards,

    It costs me $4.88 per book to ship to Finland.
    Will reply further via e-mail

    Thank you. I’m glad you find this information helpful.

    Best regards, Mark

  4. Alec 07/24/2013 at 11:15 AM #

    Wow.. your blog is back, Mark!? I been away for a while.. gonna make for some good reading 🙂

  5. Stas 11/10/2013 at 3:00 PM #


    What you think about VIX selling ( via ETF`s) hedging – is buying OTM calls appropriate way, or there is more convenient/inexpensive methods

    Thank you

    • Mark D Wolfinger 11/10/2013 at 4:54 PM #


      You ask about VIX SELLING
      Then ask abut BUYING OTM calls.

      I do not hedge with VIX options. Most traders do not understand how VIX options work. For example, they are not based on the value of the VIX index. Instead, the underlying asset is a VIX futures contract.

      That said, buying OTM VIX calls can work if the market dives quickly and VIX increases significantly. The problem, AND IT IS A BIg PROBLEM – is that VIX options may not increase in value.

      yes. It’s true. VIX could rise from 15 to 30 and the VIX 25-strike call options could trade for 50 cents – almost $5 under parity. Why? Because the underlying asset is not VIX index. If the market believes that VIX will decline before the specific futures contract that underlies the VIX options settles (expires), then there is a good chance that the options remain at low levels.

      This explanation may not be clear, but let me say this: DO NOT hedge by buying OTM VIX calls unless you are 100% certain that you understand why this is not a typical investment. Find another way to hedge


      • Stas 11/11/2013 at 3:51 PM #

        MArk, thank you for answer!
        My pleasure Stas,

        When I m selling ETF (like VXX) – im selling vix futures, because it`s this ETF underlying assets – so i will deal in short side with VIX futures, and from buy side also with VIX futures.

        My main goal is to hedge “black swan” risk – like LTCM, 2008 LEhmann and others big movements, where we can`t analyse/be prepared for them.

        For instance – – Im selling weekly calls UVXY with strike 23, and buying 27 calls also for this week. So my risk will be price appreciation from 23 to 27, right? 🙂 Or I something missing there?

        And thank you in advance

        This can get a bit tricky. You are trading a leveraged ETF. Plus you are trading an inverse ETF. Note that leveraged ETFs are designed for day traders, but it’s not that important for your strategy.

        Yes, your risk is a move above 23, with your maximum loss occurring when the settlement price is 27 or higher. And that is a possibility if VIX gets crushed.

        When volatility futures zoom higher, as you expect them to do in a Black Swan situation, the value of your ETF will decline, leaving you with a profit. That profit is limited to the cash credit that you collected. So this spread does earn money on a BS event, but the profits are not huge. I don’t know whether that small profit provides a sufficient hedge, but that depends on how much you expect to lose from your other positions if a BS event did occur


        • Stas 11/12/2013 at 12:40 PM #

          Mark than you once again for answers,

          No – this is not inverse ETF – it`s simple double long VIX ( via vix futures).

          And i don`t want hedge black swan risks via this ETF – I want in time when Im in short position/initiating short position ( when markets correcting and volatility soar and i think there is too much fear for instance), to hedge it – because i don`t want sitting in pure VIX short in situation where markets have big decline :).

          So I want hedge my short VIX position via calls buying 🙂

          • Mark D Wolfinger 11/12/2013 at 1:13 PM #

            You are correct. This is not an inverse fund. I apologize.

            You have a good hedge for your VIX short

  6. Stas 11/12/2013 at 3:33 PM #

    Thank you! 🙂