Tag Archives | credit spreads iron condors front-month options

Front Month Iron Condors

Mark,

I am not a very experienced trader and currently trade SPY iron condors. Every week, I read TA reports from Larry McMillan and S&P, so I think I have a rough idea about the possible directions (support and resistance) of the market until next expiration day (I allow enough margin for safety on these ideas).

Based on that, I try to establish one new position, for the front month, roughly once a week (but not in the last 6-10 days before expiration). However, I find that trying to establish a "safe" IC position, reasonably OTM, many times, I can not get a "good" premium for both the call and the put leg.

Therefore, my question is whether it is a better idea NOT to establish both legs of the IC on the same day, but one leg today and the other a few days later, depending on the move of SPY. If SPY moves in one direction only (rather unusual) then I will accept that my portfolio will only have some "good" call (or put) credit spreads and no iron condors for this month, which is not a big problem.

What do you think?

Thank you,

Dimitris

***

This is a good topic for discussion.

1) TA is not easy to master and many people believe it is bogus.  As long as you do not depend on support/resistance as gospel, it is one method for choosing strike prices.

2) My feeling is that front-month credit spreads (including iron condors) are far too risky for me, and – despite the fact that this is the method of choice for most iron condor traders – I do not recommend it for inexperienced traders.

The reward looks tempting; time is short; theta is pretty, but gamma is ugly. These are very difficult positions to defend or adjust.  I'd prefer to see you trade options with a longer lifetime.

It's obvious that I dislike 4-week iron condors, hate 3-week ICs and loathe 2-weekers. 

3) Now that I've expressed my thoughts, I'll reply to your questions.

a) If (and it's really up to you) you are comfortable with owning only one half of an iron condor position, then it is viable to open just one leg of the iron condor, hoping to open the other shortly.

b) But this plan often disappoints. Especially when waiting a 'few days.'  Unless you are selling spreads that are fairly close to being at the money (I know you don't because you would never refer to those as being 'safe'), the call spreads do not widen as expected (on a rally) due to IV declines.

If you happen to sell the call spread first (do not believe I am suggesting that you get short all the time), then you should have a good opportunity to sell the put spread – on a decline, if IV increases.

c) Note: This idea of trading one leg at a time is always a reasonable choice, regardless of time remaining.

d) I prefer selling only the call spread, or only the put spread, to selling the other half of the iron condor at a terrible price.  Although you win most of the time, selling front-month spreads for small credits is a long-term losing strategy. You seem to agree.

e) Although you mention it nowhere, I assume you never cover your shorts and plan to see them expire worthless. That adds to risk.

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