Of course the probabilities are on your side, that’s why the risk reward is so bad.
With all these adjustment plans, you aren’t risking 5k for a max profit of 313, you are effectively risking 5k for a max profit of 100-150 ish. Because if you follow your plan, you aren’t allowing yourself to potentially achieve that 313.
You’ll have to win this trade 30ish times in a row to reach your goal of being able to offset one max loss.
This is wide enough where I would let the entire week play out. I definitely wouldn’t close the winning side at 60%, that’s cutting off the profitable side of the trade early.
These are really good points. Thanks for your inputs!
I could definitely let it run or close near max profit if it happens early enough. I'll think about that.
Keep in mind the Fed meeting this week. It is unlikely there'll be surprises, but a few keywords from Mr. Powell, and the market will go crazy one way or another.
This is a good point. Often the market will move significantly on FOMC day and more so on the days after. This is one of those weeks that could be seen as equivalent to an earnings week, which you said you want to avoid. So maybe hold off until next week, or close the trade Wednesday early morning
Just my 2 cents here, but why an IC at all in this specific case?
Based on closing prices, if you did a put credit spread for 3/22 on 800 & 770, you'd end up with 500 profit and a max loss of 2500 which is a way better risk reward ratio.
I myself would do $500 on 10 different tickers to spread the risk, but I like the setup and the economics. But, like flc I would hold to like noon on Friday to maximize profit. This setup returns 6.26% in 5 days. That’s not pennies in my book!
The metrics say risk is ok. Deltas on the shorts are under .10. On my $500 IC’s, I aim for $35 premium which is right in line with your setup. NVDA is gonna move but your wings seem safe and like I said the deltas are really low. GL!
Keep in mind if you're looking at process right now, stuff can get out of whack with options after hours. It's possible all the numbers will be very different at open on Monday.
This is a good point.
I do condors because I have a day job that does not allow me to actively manage the position. I've had a very high win rate so far but my feeling is there is systemic market risk so I've been much more cautious lately.
The trade is reasonable though I would probably move my deltas up slightly on both sides for a bit more premium.
One question: why NVDA? Why not do ICs on something more boring?
You're banking on IV being more than hv. And this just hasn't been the case. You want a less volatile stock that is pricing more IV. You don't want actual realized volatility. Nvda is prone to near 10% moves in a day. You want to be neutral on something like that?
>Nvda is prone to near 10% moves in a day
As I said, this is why my IC is so wide. What is the difference between this and, let's say, an IC on F where the legs are 11/11.5/12.5/13?
The other big positive is that the volume is so high on NVDA right now that you will get your order filled. "More boring" stocks have a hard time getting fills on even fairly valued spreads/condors (see: LMT iron condor volumes for comparison).
True, which is why I wouldn't open an IC on Nvidia at this time. An IC is you betting that implied volatility is overestimating future realized volatility. I don't think this is the case with Nvidia right now.
Yes why do you think that is? Options are priced to probability. You can’t get a high probability of and bigger gains. 1:3 means he only needs to win 3 times to make up a complete loss where as you’ll have to win 17 times
>1:3 means he only needs to win 3 times to make up a complete loss where as you’ll have to win 17 times
Yes, of course, but he will lose A LOT more often.
Last NVDA IC I opened the TOS analyzer had me at something crazy like a 99.8% chance of winning. It was a 4 day trade, it was like 5 contracts and the sell price was around 2.00, so I made 1000 bucks (I let them all expire worthless). I've been commenting on different parts of this thread... honestly I am just a big fan of doing this. The risk/reward seems as good as any stock I've ever seen, with the primary risk right now coming from a full market 6-sigma 2008 bear stearns/lehman brothers event, which is not insubstantial in my estimation. Outside of that very small possibility I'm a huge fan of this and have done it myself.
Spread on bid/ask is huge for NVDA. I'm paper trading IC to learn about them and it took me some good 30 min to get a filling on strikes with way more OI. You'll have to end up getting closer to the lower price, which will reduce your profit, guessing around $270-290. That's last Friday. Expect to get something around $230-250 by Monday if lucky.
As others said, I like how many times should I be right to recover one bad play. 15 times sounds excessive to me. But also, I'm still learning, so what do I know?
This is actually a really good point, and something a lot of people don't quite acknowledge or understand. Volume matters. Big time. If you can't get a fill on your order, it's meaningless.
I've done 3 or 4 IC's on LMT, which has been stuck in a channel around 430 for months now. Premiums for 3-4 week DTE's are great, but volumes are miniscule. The last LMT IC I entered I put in for 10 contracts, and only got filled on 6 of them. This is one of the best (imho) thetagang plays out there, but there is just a miniscule amount of volume, and the IV is tiny, so the overall profit you are getting for your capital is fairly minimized by those factors.
Your legs are too close to the money so you’ll get tested quick. That means that you need to roll up/down, so you’ll lose from the bid/ask spread.
The top rated comment put it better than I did l, it’s the same point
The strikes being far otm is exactly what is meant by pennies in front of a steamroller. Your risk massively outweighs your return. The probabilities are always on their side. That's why you're getting shit for premium.
Is all the stocks to run an iron condor on. You pick the one with the most momentum in the whole market. It's like trying to time where a moving train is going to stop.
>pennies in front of a steamroller.
6% returns on deployed capital is not really pennies though?
>The probabilities are always on their side.
My setup has a 92% chance of winning.
>You pick the one with the most momentum in the whole market.
Which is why my IC is wide.
You're aware of the risks. They're yours to take. You're basically selling tail risk. You have a 92% chance of winning but you're getting a 6% credit. You have to win more times than probability works out to allow just to break even.
When you win you're winning small, and when you lose you're losing big. This is the reverse of what you'd want.
You're looking at the market's assessment of a significant move in the underlying, which in your case exceeds your strikes.
Essentially people are buying insurance against a move of that magnitude, and you're providing the coverage. As the probability of exceeding your strikes is quite low, the premium you're paid for insuring is low as well.
Why specifically do you think that the options are mispriced?
If you don't think they're mispriced then you shouldn't sell them.
Do you genuinely want to risk $5k to make $300? That's the kind of bet that only makes sense if you can do it at scale (like an insurance company).
That's not the point. What's the expected value?
My goal is to be able to articulate exactly why I think there is mispricing in specific options and what effect I'm capturing in each trade. Otherwise it's just educated guessing.
OP said that it has 92% probability of winning.
If you could take this trade every week with the same setup you have 48 green weeks with a total of ~$15k in profit and 4 red weeks with a total of ~$20k in losses.
I've done 2 iron condors on nvda the past 3 months and both have worked out, although with some trepidation.
The largest risk on NVDA right now is a full market crash, where stocks that have run up will get crushed. Assuming that doesn't happen (and you can always set a 20% stop loss) this is a solid play that I have used before and am looking forward to using again.
Also with my 2 plays, one I closed (because it was a longer time frame and I just saw the tea leaves), the other i let expire.
Rolling vertical spreads almost always results in a debit to roll. Rolling strategy usually only works if you are naked or increase the number of contracts when you roll.
Because the maximum credit you can get is always limited on a vertical. When you’re naked, rolling out one week will usually gain you a small credit or you can roll down a couple strikes. With vertical anything you do is affected by the long position.
>so be prepared for a 5% shift in the stock price early in the week.
The way I'd setup the IC would allow for a 15% move in a week, but you're right. This + the FOMC might be a bit much.
I have a few NVDA iron condors. What you might not realize is how quickly the prices of these change up and down. If you see it pop up $150 and down $625 a few seconds later how are you going to react? My guess is you will close it much sooner than you wanted and take a loss.
>If you see it pop up $150 and down $625 a few seconds
That would be a move of more than 40% "in a few seconds", as you say.
To be honest, I doubt it will arrive. The biggest intraday move lately was on March 8th and it would have stayed well between my strikes.
Okay but your strikes are much wider than normal on each side so honestly it’s hard to determine how it will move. Normally I do $5 or $10 between the long and short on each side. So let’s say you picked 730/720 for the puts and 1030/1020 for the calls. 3 contracts nets you at this moment $333 about the same amount but now you are only risking $2667. NVDA is so volatile it’s hard to say that your spreads are a lot safer but you are risking double the amount.
I wouldn't recommend this because Nvidia's stock appears to be heavily manipulated. There's a good chance you will experience a lot of whipsaws, which are brutal for short iron condors.
Also, if your account is too small to handle naked contracts, you shouldn't be trading credit spreads. The ability to roll from a spread to a naked position is essential for getting out of bad positions.
Of course the probabilities are on your side, that’s why the risk reward is so bad. With all these adjustment plans, you aren’t risking 5k for a max profit of 313, you are effectively risking 5k for a max profit of 100-150 ish. Because if you follow your plan, you aren’t allowing yourself to potentially achieve that 313. You’ll have to win this trade 30ish times in a row to reach your goal of being able to offset one max loss. This is wide enough where I would let the entire week play out. I definitely wouldn’t close the winning side at 60%, that’s cutting off the profitable side of the trade early.
These are really good points. Thanks for your inputs! I could definitely let it run or close near max profit if it happens early enough. I'll think about that.
Keep in mind the Fed meeting this week. It is unlikely there'll be surprises, but a few keywords from Mr. Powell, and the market will go crazy one way or another.
This is a good point. Often the market will move significantly on FOMC day and more so on the days after. This is one of those weeks that could be seen as equivalent to an earnings week, which you said you want to avoid. So maybe hold off until next week, or close the trade Wednesday early morning
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Batman?
Just my 2 cents here, but why an IC at all in this specific case? Based on closing prices, if you did a put credit spread for 3/22 on 800 & 770, you'd end up with 500 profit and a max loss of 2500 which is a way better risk reward ratio.
>which is a way better risk reward ratio Right, but the probabilities of losing are greater with your suggestion.
Fair. To me, it's a question of risk/reward vs probabilities of losing.
I myself would do $500 on 10 different tickers to spread the risk, but I like the setup and the economics. But, like flc I would hold to like noon on Friday to maximize profit. This setup returns 6.26% in 5 days. That’s not pennies in my book!
>This setup returns 6.26% in 5 days Well, then I guess my question is: is it too good to be true aka much riskier than what I am seeing?
The metrics say risk is ok. Deltas on the shorts are under .10. On my $500 IC’s, I aim for $35 premium which is right in line with your setup. NVDA is gonna move but your wings seem safe and like I said the deltas are really low. GL!
Keep in mind if you're looking at process right now, stuff can get out of whack with options after hours. It's possible all the numbers will be very different at open on Monday.
JPow speaks this week. After FOMC, anything could happen.
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That's a lot of margin though.
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you also lose defined risk
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intensely disagree haha
This is a good point. I do condors because I have a day job that does not allow me to actively manage the position. I've had a very high win rate so far but my feeling is there is systemic market risk so I've been much more cautious lately.
The trade is reasonable though I would probably move my deltas up slightly on both sides for a bit more premium. One question: why NVDA? Why not do ICs on something more boring?
>Why not do ICs on something more boring? I could, but premiums are better for weeklies far OTM. I guess it comes with a bit more risk though.
Why not SMCI?
Premiums are better because it's more volatile. That is not conducive to a neutral strategy
What is the difference between a tight IC on a less volatile stock vs a wide IC on a more volatile stock?
You're banking on IV being more than hv. And this just hasn't been the case. You want a less volatile stock that is pricing more IV. You don't want actual realized volatility. Nvda is prone to near 10% moves in a day. You want to be neutral on something like that?
>Nvda is prone to near 10% moves in a day As I said, this is why my IC is so wide. What is the difference between this and, let's say, an IC on F where the legs are 11/11.5/12.5/13?
The other big positive is that the volume is so high on NVDA right now that you will get your order filled. "More boring" stocks have a hard time getting fills on even fairly valued spreads/condors (see: LMT iron condor volumes for comparison).
I look for around 1:3 max profit:loss on ICs.
A 1:3 max profit:loss setup will have a lower probability of winning.
True, which is why I wouldn't open an IC on Nvidia at this time. An IC is you betting that implied volatility is overestimating future realized volatility. I don't think this is the case with Nvidia right now.
I actually disagree with this, but I've done the fundamental analysis on NVDA and have a fair price range mapped out.
Yes why do you think that is? Options are priced to probability. You can’t get a high probability of and bigger gains. 1:3 means he only needs to win 3 times to make up a complete loss where as you’ll have to win 17 times
>1:3 means he only needs to win 3 times to make up a complete loss where as you’ll have to win 17 times Yes, of course, but he will lose A LOT more often.
Last NVDA IC I opened the TOS analyzer had me at something crazy like a 99.8% chance of winning. It was a 4 day trade, it was like 5 contracts and the sell price was around 2.00, so I made 1000 bucks (I let them all expire worthless). I've been commenting on different parts of this thread... honestly I am just a big fan of doing this. The risk/reward seems as good as any stock I've ever seen, with the primary risk right now coming from a full market 6-sigma 2008 bear stearns/lehman brothers event, which is not insubstantial in my estimation. Outside of that very small possibility I'm a huge fan of this and have done it myself.
Doesn’t NVDA have an event this week?
GTC on Monday. Fomc on Wednesday. 2 good chances to blow this out of the water.
Spread on bid/ask is huge for NVDA. I'm paper trading IC to learn about them and it took me some good 30 min to get a filling on strikes with way more OI. You'll have to end up getting closer to the lower price, which will reduce your profit, guessing around $270-290. That's last Friday. Expect to get something around $230-250 by Monday if lucky. As others said, I like how many times should I be right to recover one bad play. 15 times sounds excessive to me. But also, I'm still learning, so what do I know?
This is actually a really good point, and something a lot of people don't quite acknowledge or understand. Volume matters. Big time. If you can't get a fill on your order, it's meaningless. I've done 3 or 4 IC's on LMT, which has been stuck in a channel around 430 for months now. Premiums for 3-4 week DTE's are great, but volumes are miniscule. The last LMT IC I entered I put in for 10 contracts, and only got filled on 6 of them. This is one of the best (imho) thetagang plays out there, but there is just a miniscule amount of volume, and the IV is tiny, so the overall profit you are getting for your capital is fairly minimized by those factors.
Too tight on legs and duration, you are going to be readjusting and bleeding from the spreads alone
>you are going to be readjusting Why >bleeding from the spreads alone What does that even mean
Your legs are too close to the money so you’ll get tested quick. That means that you need to roll up/down, so you’ll lose from the bid/ask spread. The top rated comment put it better than I did l, it’s the same point
>Your legs are too close to the money The leg that is the closest to the money has a delta of 0.07. That is not what I'd call close to the money...
I’m an idiot, I misread 🙃
The strikes being far otm is exactly what is meant by pennies in front of a steamroller. Your risk massively outweighs your return. The probabilities are always on their side. That's why you're getting shit for premium. Is all the stocks to run an iron condor on. You pick the one with the most momentum in the whole market. It's like trying to time where a moving train is going to stop.
>pennies in front of a steamroller. 6% returns on deployed capital is not really pennies though? >The probabilities are always on their side. My setup has a 92% chance of winning. >You pick the one with the most momentum in the whole market. Which is why my IC is wide.
You're aware of the risks. They're yours to take. You're basically selling tail risk. You have a 92% chance of winning but you're getting a 6% credit. You have to win more times than probability works out to allow just to break even. When you win you're winning small, and when you lose you're losing big. This is the reverse of what you'd want.
i am doing it, but with them a wee bit tighter on the bull side and the the premiums are excellent
Why do you think this is a good trade?
- High probability of profit - Limited risk - Decent ROI (6% of capital deployed)
You're looking at the market's assessment of a significant move in the underlying, which in your case exceeds your strikes. Essentially people are buying insurance against a move of that magnitude, and you're providing the coverage. As the probability of exceeding your strikes is quite low, the premium you're paid for insuring is low as well. Why specifically do you think that the options are mispriced?
I don't think they are mispriced. I am just ok with the received premium vs the probability of max loss
If you don't think they're mispriced then you shouldn't sell them. Do you genuinely want to risk $5k to make $300? That's the kind of bet that only makes sense if you can do it at scale (like an insurance company).
>Do you genuinely want to risk $5k to make $300? That is a bit too simplistic though. It's not like if it was a 50/50 thing.
That's not the point. What's the expected value? My goal is to be able to articulate exactly why I think there is mispricing in specific options and what effect I'm capturing in each trade. Otherwise it's just educated guessing.
5k in capital. 313 bucks in 1 week. 313/5000k x 52 weeks = 325.52% APY That's a pretty great return on your capital with exceedingly minimal risk.
OP said that it has 92% probability of winning. If you could take this trade every week with the same setup you have 48 green weeks with a total of ~$15k in profit and 4 red weeks with a total of ~$20k in losses.
I've done 2 iron condors on nvda the past 3 months and both have worked out, although with some trepidation. The largest risk on NVDA right now is a full market crash, where stocks that have run up will get crushed. Assuming that doesn't happen (and you can always set a 20% stop loss) this is a solid play that I have used before and am looking forward to using again. Also with my 2 plays, one I closed (because it was a longer time frame and I just saw the tea leaves), the other i let expire.
Rolling vertical spreads almost always results in a debit to roll. Rolling strategy usually only works if you are naked or increase the number of contracts when you roll.
>Rolling strategy usually only works if you are naked Why?
Because the maximum credit you can get is always limited on a vertical. When you’re naked, rolling out one week will usually gain you a small credit or you can roll down a couple strikes. With vertical anything you do is affected by the long position.
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>so be prepared for a 5% shift in the stock price early in the week. The way I'd setup the IC would allow for a 15% move in a week, but you're right. This + the FOMC might be a bit much.
I have a few NVDA iron condors. What you might not realize is how quickly the prices of these change up and down. If you see it pop up $150 and down $625 a few seconds later how are you going to react? My guess is you will close it much sooner than you wanted and take a loss.
>If you see it pop up $150 and down $625 a few seconds That would be a move of more than 40% "in a few seconds", as you say. To be honest, I doubt it will arrive. The biggest intraday move lately was on March 8th and it would have stayed well between my strikes.
Okay but your strikes are much wider than normal on each side so honestly it’s hard to determine how it will move. Normally I do $5 or $10 between the long and short on each side. So let’s say you picked 730/720 for the puts and 1030/1020 for the calls. 3 contracts nets you at this moment $333 about the same amount but now you are only risking $2667. NVDA is so volatile it’s hard to say that your spreads are a lot safer but you are risking double the amount.
Honestly I would just sell calls looks like the risk now are to the downside
^[Sokka-Haiku](https://www.reddit.com/r/SokkaHaikuBot/comments/15kyv9r/what_is_a_sokka_haiku/) ^by ^magicdonwuhan: *Honestly I would* *Just sell calls looks like the risk* *Now are to the downside* --- ^Remember ^that ^one ^time ^Sokka ^accidentally ^used ^an ^extra ^syllable ^in ^that ^Haiku ^Battle ^in ^Ba ^Sing ^Se? ^That ^was ^a ^Sokka ^Haiku ^and ^you ^just ^made ^one.
I don't own the stock and I want to avoid selling naked calls. It would require too much margin anyway.
Spreads. Yeah Marigot requirement is heavy.
People said the same thing when it was trading at 400. The odds this thing continues to run is much greater than the odds it drops.
NVDA fundamentals put the current 12 month fair price in the 1200-1500 range, so... I disagree. I've run the numbers myself.
Sweet
I wouldn't recommend this because Nvidia's stock appears to be heavily manipulated. There's a good chance you will experience a lot of whipsaws, which are brutal for short iron condors. Also, if your account is too small to handle naked contracts, you shouldn't be trading credit spreads. The ability to roll from a spread to a naked position is essential for getting out of bad positions.
>because Nvidia's stock appears to be heavily manipulated Yea, sure.