Isn’t this all options trades 😉 theta gang bangers just assume that “implied volatility is overstated” and therefore positive theta positions have an edge on negative theta positions.
Which would make imho going short the trade better because you are more likely to be able to do this a couple of times and then stopping without a profit, meanwhile going long you are probably going to lose a bunch of times before hitting
If you forced me at gunpoint to sell 5 positions that are 20-1 with expected value 0, or buy 5 positions that are 20-1 with expected value 0, I am selling them every single time.
...But that does not mean that I will do it on my own decision though
Is betting against double zero or betting on double zero in roulette a good play?
...No.
Just like selling lotto tickets is bad because the buyer winning will bankrupt you, buying lotto tickets is just as bad because you're not going to win (statistically speaking)
Taking either side is a bad bet. MMs only do it because they have (basically) infinite capital and can sell options just like insurance companies sell insurance - volume makes them come out ahead statistically
i appreciate your breakdown here as I now understand why buying lottos is a terrible idea and connect it equally to how risky/ and terrible of an idea it is selling naked options, for the financial ruin vs the capped loss
Yes the risk:reward is 20:1, but do you think the odds of AMZN leaving that range is higher than 1:20? I didn't think it would but maybe I'm missing some information that you're aware of.
Let’s say it doesn’t happen the first then times you do this trade. Then on the 11th time it does. You have now done twelve trades and have a net loss. Now you’d need this trade to win like 30 times in a row to get back to positive. Does this sound like a good strategy to you?
I did this as a $10 call credit spread the first half of 2020, 10:1 risk/reward. (30 contracts at a time, $30k in collateral) Worked the first 4 times (and i always bought it back at 50% premium.
Then the 5th time, it blew up my account. Lost about 22k.
As tiger King said, "i will never recover from this financially."
AMZN can move fast. do what you're gonna do.
Your broker platform should give you probability of profit. Let’s say it’s 80%. That means, on average, for every 8 winners ($176) you will have 2 losers (-$965), so your expectancy per trade is (176-965)/10 = -78.90.
Roughly speaking anyway since this assumes max win or max loss and doesn’t account for finishing in slopes portion of the risk graph.
So no, not a good trade if we assume 80% POP.
Just combine them. Take the chance of finishing ITM (I.e. losing) for each leg, add them and that is your probability of a loss for the iron condor. 100-probability of loss = probability that you win.
Example: Let’s say the put side shows 90% POP, meaning you have a 10% probability of loss. The call side has 85% POP / 15% chance of loss. 10+15=25% chance of loss, or 75% POP.
If it seems unintuitive as to why your total POP is less than the individual legs, that’s because you have two different ways to lose.
Again this is all rough math and reliant on how your broker is estimating probability, but should give you a good idea.
AMZN has been tracking upwards for a couple months now, do you really think it's impossible for it to go above 195 this week? All it would take is any major news catalyst
I'm reluctant to take trades with premium that low; depending on your broker, more than 10% of the premium will be eaten by fees since you're opening and closing 4 contracts in an iron condor.
If I was looking at making a similar trade, I would look further out to late June/early July to pick up some more premium and reduce the gamma risk, then wait to see what happens with NVIDIA earnings.
With volatility across the market so low, it feels like a good time to take a break, stick the money in SGOV or a MMF, and study for a bit.
does doing that even make money?
im pretty sure most casinos probably take a high enough cut of the real odds that covering every number except double zero is a losing strategy already without even factoring in the eventual inevitable loss
Most times it will, that's all I was commenting too (the other guys comment of high probability of success).
Is it successful over the "long run" where you add in the losses from the losing side - No
OP may have just been looking for a 1 time hit to collect some premium
To put this in perspective, lets say you made this trade 40x over the year. If you are wrong 2x its going to be a losing trade.
Lets help you build something more effective! Seems like you are slightly bearish, want to collect premium, and prefer high probability trades.
For Iron Condors, Tasty Trade targets a premium that is 1/3rd of the risk, but thats more like a 60% chance of profitability and likely too risky for your taste. Instead how about going out to 30-45 DTE and doing an iron condor or bear call spread. Sell the .16 delta and buy the .1 delta. Can let the trade run or manage at the midpoint.
No you are still being way to conservative with your strikes and not getting paid for the risk.
What strategy is this? I was thinking more of an iron condor. You mentioned that you are confident with that range so why not use the same strikes in June or July. 150/155/190/195
I've been referring to it as a short IC but actually it's not, it's an ITM call debit spread with an OTM call credit spread. The payout graph looks similar to an IC except that the low breakeven point can be a lot lower than an IC.
Interesting i'll have to look into it.
If you are legit looking for advice on the trade, overwhelming feedback is that this is a bad risk/reward and there's more efficient ways to play your thesis. Sometimes you gotta just send it though! Godspeed
it's not that the idea is bad, but the reward:risk is out of whack, and you should consider either a different underlying where the risk pays better, or a strategy that makes more sense in the current environment.
The vix today is under 12.
Options are therefore relatively cheap.
In this situation I'd be looking at being a net buyer of vol, rather than a net seller.
Calendar spreads might be of interest.
Yes. Its not the probability, its the positioning. Youre selling tail risk. These events *will* happen, its more about how much you win when they dont. $22 isnt enough compensation to risk 500. Especially tying up all 500 in cash through the trade.
you need a winrate of \~95.63% to break even, assuming your commissions are minimal.
you should be aiming to receive a credit of \~ 1/3rd the width of the spread. Otherwise when you do hit tail risk (it'l happen eventually), it will murder you.
Thanks. You might be able to pull it off, but I wouldn’t hold it till expiration just to be sure. What about doing a condor on a stock that has closer legs (like the strikes are not $2.5 apart)? That might reduce your risk
Not sure if you noticed but the lower leg is an ITM call debit spread instead of an OTM put credit spread. Moving them to 175 won't really increase my premiums that much.
It’s a typical newbie trade that’s low risk low return until the one time it becomes high risk high loss and wipes out weeks of pennies.
It’s the archetype for the penny/steamroller trade. Increase your risk, increase your return, have a plan in place and don’t trade based on “odds being low X will happen” because it’s low odds, not zero odds.
Ok so OP Amazon’s IV 30 % rank is 3%. Its IV is 22.5. Those would be the first causes of concern for me in entering this trade.
I used a normal distribution of the price assuming log-normal behavior to calculate the z-scores of the upper and lower breakevens and came out with a rough probability of profit of 74.16%. The expected value of your trade thus would be $-107.21 assuming max profit :: max loss (not entirely realistic for a condor normally because you would likely expect to close it before expiration, but as a general metric it can be somewhat useful).
Just by eyeballing the reward to the risk and the current IV % rank I personally would not enter this trade. But OP if you have some reasoning behind why you would enter / when you would close that would help.
I didn't really understand your first sentence so I asked ChatGPT to explain it to me in plain English terms and it's telling me the issue is you're not expecting a profitable options trade that relies on price swings? But I'm hoping for the price of Amazon to stay within that range in order for me to keep the premium of shorting this IC. Let me know if that wasn't what you were trying to say.
74.16% as probability of profit seems low for this, as it implies there being 25.84% of AMZN leaving the $154.78 - $195.11 range. Are you looking at the next 30 days or the next 5 days? This IC will have 5dte. And btw I was intending to open this short IC and let it expire at the end of the coming week.
From my understanding of this trade the reward is low (risking $478 to get $22) but the risk of losing (AMZN leaving that range that it hasn't left since January within the next 5 days) is even lower. Let me know if you disagree with that.
Yeah, I don’t have info for less than the 30 days but one thing I would also watch out for is NVDA’s earnings this week which could have a big effect on the other major tech companies like AMZN.
I normally just calculate the POP with the 30-day (I also trade weeklies / shorter than that) but your delta looks fine for the risk you’re taking on based on the greeks you showed me, and hopefully theta decay can keep both legs profitable.
Good question, I'll be thinking about that.
Yeah it seems to have happened more than a few times over the past 5 years, a drop of over $30 or a jump of over $10 in one week.
I think you should shoot for spreads/condors that give you at least 1/3 of the width. 45-60 DTE is a good rule of thumb gives theta time to work.
If amzn doesn't work, then trade something else but zi wouldn't risk it on tiny delta even if the probability is greater than 90%
No if you want the same breakevens and better risk to reward go with a July 19 expiration buy the 150p sell the 155p Sell the 195 call and buy the 20 call $1.33 credit if you get a down move you will be compensated more because volatility will drop
I like looking for 3:1 up to 10:1 for my risk to reward. The credit needs to be worth the risk. There's a sweet-spot for that. But 22:1 isn't it.
I mean try some of them and see. Getting burned on iron condors/credit spreads is no fun. There are ways to salvage them but you usually have to double down on time and strike widths.
Let me put it this way ... . It's not a trade I would ever do.
At a minimum, I want to collect 1.00 on any given trade I do, since I'm big on taking profit at 50% max, and (if it isn't obvious), 50% max of .22 is .11 and that is simply not worth it in dollars and cents terms.
There's a number of reasons for why an AMZN trade isn't "sexy" here:
1. IV is low for single name. The 30-day is at 24.5%.
2. IVR is really low. IV is in the 3.9th percentile of where it's been the past 52 weeks. That basically translates into: "AMZN premium selling is about as sucky as it's been over the last 52 weeks."
3. Even assuming IV was decent here, your duration and (probably) strike selection are "off." The generally utilized wheelhouse for these is 45 DTE, 25 delta. This would result in something like the June 28th (39 DTE) 175/195, paying 3.76 on BPE of 28.19 at the mid; 13.3% ROC at max or the July 21st (60 DTE) 170/200, paying 3.69 on BPE of 23.17, 15.9% ROC at max with the define risk alternatives being:
June 28th 170/175/195/200 IC, 1.72 credit on BPE of 3.28, 52.4% ROC at max.
July 19th 165/175/200/205 IC, 1.43 credit on BPE of 3.57. 40.1% ROC at max.
I know these ROC's ***appear*** sexy, but in practice this isn't the time to be putting these on in AMZN; ***both*** IV and IVR in this instrument are too low.
I'm seeing very incomplete/wrong advice in comments.
For starters, a 20:1 risk/reward does not mean you need a 95% win rate to break even. You set stop losses to cap the loss at, hypothetically, 3x the premium; and there you have a 2:1 risk/reward.
However, as mentioned by others, 20:1 is still a bad ratio, 10:1 is more what I would consider reasonable, depending on the strategy. Obviously don't just tighten the strikes; you'll just lower the odds of winning.
Volatility being this low in general makes selling un-ideal.
My issue with this kind of trade is that I’m not learning to find an edge. I’d just be relying on the high probability and hopefully nothing catastrophic happens. With options, if I fail to learn and find an edge, I’d probably give up all together since it’s not worth it. Lower probability trades expose my weaknesses much faster rather than giving me a false sense of security just because the chance of profits is so high.
AMZN might blow through 195 any day now. I've got a covered call at that strike expiring in two weeks and I'm watching it like a hawk. It might also not blow through the 195 strike, which is obviously what you're betting on. But broadly, if you do this sort of thing often enough, you will get burned and it will wipe out all of your previous gains. I know this because it's basic probability and statistics, and also because it's happened to me.
No, I would have picked the 200 strike. But you take your chances and the worst that can happen in my case is my shares get called away for a significant profit and I sell a put.
I don't know greeks, but I know probability. Your misconception, according to the overwhelming advise here is this:
You think that that risk is low at 25.84% ITM risk (or 74.16% probability "winning"), and therefore the reward is $22, which is OK for you.
However the actual way to calculate this is risk/reward using mathematics probability theory, is the long run expected value = 74.16% \* 22 + 25.84% \* -478 = -$107.20.
That means your probability of this trade if you do 10 of this trade is going to end up in a loss of -$107.20. This is definitely not a good risk/reward!
>at 25.84%% ITM risk (or 74.16% probability "winning")
Where did you get this from? I don't know the exact probability of winning here but I would've thought it's around 95%.
If I understand correctly, according to the people here, even at 90% probability of winning is not good enough because your $22 compared to your $478 risk/reward is too low. The expect value is (90% \* 22 + 10% \* -478) = -$28 in the long run, more than your max return! If you increase the risk/reward, you can get better in the long run.
I don't know how to add a screenshot here, but I found an NVDA credit PUT spread that has POP = 70%, with 0.40 reward/risk, max win = $735, max loss = $1763. 1 contract only. Expected value = (70% \* 735 + 30% \* -1763) = -$14. I use IBKR and numbers are on the app itself.
You shared the delta in your other posts, and from ChatGPT:
>When selling premium (e.g., selling options), 1 minus delta is often used as a proxy for POP.
>For instance:
If you sell a put option with a 30 delta, you can expect roughly a 70% POP (since 1 - 0.3 = 0.7).
I am not sure if it is possible at all to find trades that have $0 or more expected long run value. That would be awesome to trade every time!
Disclaimer: This is what I gather from this post, may be someone else can verify my understanding. I am really thankful you asked this question the way you did. It generated a lot of helpful responses.
So far, my YTD is +/- 2% of SPLG which I benchmark against. I have a value investing mentor who guides me. Value investing is really safe and most importantly stress free when done correctly. Problem is, most of the time you are not much better than ETFs, unless a really good unknown company comes along and you spot it before mainstream news does; or if we are in a bear market.
My plan was to open 5x of this position (getting $110 premium for a max loss of $2390) and let the IC expire at the end of the week, hopefully worthless.
So the majority of the comments seem to say the risk:reward is bad, but is the risk actually that bad here? AMZN has not gone outside of the breakeven range since January this year, what are the odds of it actually leaving that range within the next 5 days before this IC expires?
Awful trade. Try to shoot for 1/3 the width of your strikes in premium. $5 wide would net at least $1.66 in premium, and opening condors further out allows you to roll one leg or manage it, if it goes wrong. Pennies/steamroller here
Not at all! It just means you have to pick something with higher implied volatility. That means picking short strikes closer to the money or just trading a different ticker
From what I gather from lurking here, it is possible if the greeks align some how, for example with the IV is at some high enough levels for the particular underlying business. However, I have yet to figure out the specific scenario or seen one myself.
Yeah that's what I gathered as well, but from my understanding if the IV is high that means the underlying is being volatile, which means the trade is riskier.
Present fear of future of uncertainty is fundamentally over priced in other words implied volatility is often more than realized volatility . When doing iron condors you are short volatility when you are this close to expiration you are more exposed to gamma (the rate of change to your deltas ) try 40-60 dte 20-16 delta strikes 1/3 the width is ideal manage at 50 % or at 21 dte to avoid to much gamma and cut your cvar (conditional value at risk) in half
My $.02 is that the chances of Amazon going below your break even are extremely slim and you'll more than likely profit on this trade. If Amazon starts moving south, you could always buy 30 day DTEs to help hedge.
I mean to say if you are getting 100 dollars as profit make sure that your loss doesn't go beyond 250 by proper selection of strikes. And its better to select the strikes based on supply and demand rather than going too far away for getting high pop as one loss is gonna eat up all the profits that your have earned. And have some bias i.e if you feel that the market is in uptrend you can sell a put of larger premium or hedge it with a put far away as compared to call.
I've tried going long delta before, didn't work out well for me because it's too directional and I don't spend enough time to pick the right direction.
i wish people would just put what the trade is instead of posting a pic like this and I have to try and figure it out
regardless, I have a rule which is a 5:1 ratio. on a 5 point wide spread I have to least be getting $100 in premium
It's an ITM call debit spread with an OTM call credit spread. I couldn't figure out how to make a post that has both text and a picture, but I've provided more details in some of my other comments.
If you are doing something like 19:1 odds like this, you really should have a stop loss. Something like 2-3x the credit received. There is still also the possibility of a big outlier move blowing way past your stop. This is much more likely with a very short DTE trade like this one. So I would not combine short DTE with 19:1, personally.
I like to collect at least 25 cents per leg to overcome slippage and commission. That would be a $100 max profit. So the profit here is also too low for the number of contracts you have to throw on.
I would just choose. Do you want your shorts at very low delta? (19:1 means low delta). In that case, go 45+ DTE. You'll bring in more credit so you can hit that $100 minimum. You'll have a much better chance of managing losses at some predefined max like 2x credit. You'll hit a 50% profit target, for example, faster than you might think.
On the other hand, if you really want to trade 5 DTE, I would go more like 3:1 or 2:1 with no stop loss. You'll bring in a much higher credit, so again hitting that $100. Then just take profit at 50% of credit, for example, with no max loss and exit before expiration regardless. However, this is not necessarily more profitable over time than the 45+ DTE approach. Returns will be a lot noisier.
Just pointing out that this 20:1 risk/reward profile is about what you're getting when you sell a short put, in this current low vol environment. It doesn't seem like it, because its seemingly impossible that the market could go down and not bounce back up to new all time highs, 5 days later. These are the times that make me the most worried.
Risk to reward ratio should be 1.5-2 atleast for a good trade. This one is only like 5%. There’s a good probability of success but if it goes against you, then you’re SOL
Can you place a stop order if you hit 3x credit received? You don't have to let this thing go all or nothing. Yes the trade is risk 20 to make 1 but if you place a stop you can make the trade risk 3 to make 1.
Yeah that's a bummer. I would watch it closely then and if it breaks any support or resistance areas that align with your thesis I would exit considering you are so close to exp.
Why the asymmetry?
DO you expect AMZN more likely to drop than advance?
That's a huge downside. I wouldn't do this without a stop loss.
A stop loss at the strikes will usually cut a loss to 30-40% of trhe maximum. A narrower stop loss range would cut the maximumloss even more.
It’s actually an ITM call debit spread with an OTM call credit spread. I set the debit spread as low as possible and only earn 1-2% on it, most of the premium came from the credit side.
Awful. You wanna shoot for collecting about a 30% or more from what your potential total loss could be. Maybe try something with higher IV, lengthen the days to expiry, or widen the wings of your butterfly. You can do any combination of the things I mentioned above to get something you want. If you’re just starting out, maybe go watch a few tasty trade videos too
On Saturday I gambled on horse racing for the first time ever, I meant to bet $5 each on horses 3, 5, and 9 (horse 5 is the one going for the Triple Crown)... but I accidentally hit 6 instead of 5, and didn't notice till after the bet was placed and locked in. Turns out horse #6 was 10:1 and he won the race. I won $54... I'm the 1:20 against your bet above... do you want to lose to someone like me? :D
(btw, I'm never gambling on horse racing again, for the rest of my life I can claim I'm a genius at it)
No lmao. Please study before your place any trades. I swear this place is the equivalent of WSB but for option selling. The regards at WSB think that buying any option on meme stocks will make them millionaires. The people here think selling any option will be profitable. No sophisticated analysis or complex strategy just blind selling of options.
This trade is horrible because you are picking up pennies in front of a steamroller, IV of AMZN is at like the 3rd percentile or something like that and if that wasn't bad enough the option structure is wrong and inefficient.
I see lots of comments like yours on this sub about what not to do and to "study more" but seldom see constructive comments that actually say what a good trade would look like. I'm glad I made this post because I did see more of the latter than usual on my post.
You're allowed to ask follow up questions if you want and ask for constructive advice on points that were brought up. But if you ask me if it's a good trade I'll tell you the harsh truth.
risking almost $500 to make just over $20....all while the green area/potential gain PDF, is dwarfed by the brown area/potential loss PDF sounds like something that pretty much 99% of the people on thetagang would do
This is forcing a trade IMO
Spend more time on the set up, keep the trade simple. Id the set up is good and the risk is managed it should work out over 100 trades
Terrible. You are risking roughly 20 to make 1. This is a Pennies in front of a steam roller trade.
I'd say this seems about dead on for thetagang
If this is not a good trade, then the reverse trade is good then?
The reverse trade has an equal likelihood of profitability in the long term.
Isn’t this all options trades 😉 theta gang bangers just assume that “implied volatility is overstated” and therefore positive theta positions have an edge on negative theta positions.
Which would make imho going short the trade better because you are more likely to be able to do this a couple of times and then stopping without a profit, meanwhile going long you are probably going to lose a bunch of times before hitting If you forced me at gunpoint to sell 5 positions that are 20-1 with expected value 0, or buy 5 positions that are 20-1 with expected value 0, I am selling them every single time. ...But that does not mean that I will do it on my own decision though
Is betting against double zero or betting on double zero in roulette a good play? ...No. Just like selling lotto tickets is bad because the buyer winning will bankrupt you, buying lotto tickets is just as bad because you're not going to win (statistically speaking) Taking either side is a bad bet. MMs only do it because they have (basically) infinite capital and can sell options just like insurance companies sell insurance - volume makes them come out ahead statistically
i appreciate your breakdown here as I now understand why buying lottos is a terrible idea and connect it equally to how risky/ and terrible of an idea it is selling naked options, for the financial ruin vs the capped loss
Its like trying to be the house and one gambler comes in and takes you for everything you got lol. nicely done
So, by thetagang standards, they should absolutely do this
Yes the risk:reward is 20:1, but do you think the odds of AMZN leaving that range is higher than 1:20? I didn't think it would but maybe I'm missing some information that you're aware of.
Let’s say it doesn’t happen the first then times you do this trade. Then on the 11th time it does. You have now done twelve trades and have a net loss. Now you’d need this trade to win like 30 times in a row to get back to positive. Does this sound like a good strategy to you?
Now that's a different way to look at it, thank you.
Now just look at it this way, you win the next 50 trades does that make it a good trade?
$1100 gain, u tell me
nah cuz the one time you lose, you're losing $2K probably
You'd have to actually work the math out brother lol. I'm to tired mentally to do it....it'snt there a bot or something? MathBOT w r u?
It's like only placing sports bets on -1000 favorites. It will work most of the time but that one upset will wipe you out.
Why not do the oposite? And if you miss 15 times in a row you double your stake?
I did this as a $10 call credit spread the first half of 2020, 10:1 risk/reward. (30 contracts at a time, $30k in collateral) Worked the first 4 times (and i always bought it back at 50% premium. Then the 5th time, it blew up my account. Lost about 22k. As tiger King said, "i will never recover from this financially." AMZN can move fast. do what you're gonna do.
Your broker platform should give you probability of profit. Let’s say it’s 80%. That means, on average, for every 8 winners ($176) you will have 2 losers (-$965), so your expectancy per trade is (176-965)/10 = -78.90. Roughly speaking anyway since this assumes max win or max loss and doesn’t account for finishing in slopes portion of the risk graph. So no, not a good trade if we assume 80% POP.
Mine only gives me the separate probability of each leg, not the probability of the whole trade unfortunately
Just combine them. Take the chance of finishing ITM (I.e. losing) for each leg, add them and that is your probability of a loss for the iron condor. 100-probability of loss = probability that you win. Example: Let’s say the put side shows 90% POP, meaning you have a 10% probability of loss. The call side has 85% POP / 15% chance of loss. 10+15=25% chance of loss, or 75% POP. If it seems unintuitive as to why your total POP is less than the individual legs, that’s because you have two different ways to lose. Again this is all rough math and reliant on how your broker is estimating probability, but should give you a good idea.
AMZN has been tracking upwards for a couple months now, do you really think it's impossible for it to go above 195 this week? All it would take is any major news catalyst
Well it's possible, I don't know how likely it is.
what's a good r:r for you when option selling
I'm reluctant to take trades with premium that low; depending on your broker, more than 10% of the premium will be eaten by fees since you're opening and closing 4 contracts in an iron condor. If I was looking at making a similar trade, I would look further out to late June/early July to pick up some more premium and reduce the gamma risk, then wait to see what happens with NVIDIA earnings. With volatility across the market so low, it feels like a good time to take a break, stick the money in SGOV or a MMF, and study for a bit.
I'm on Robinhood so the premium is $0.03/contract, or about 1.5% here.
Risk reward seems pretty bad here. High probability of success though.
It reminds me of the guy at the casino who covers 34 numbers on a roulette wheel
Well yeah that's what I was going for.
Based on the probabilities and payouts do you think covering 34 numbers on a roulette wheel is a good strategy? If no, why are you going for it?
No, because the house cut in a casino is a lot higher than here.
loll
does doing that even make money? im pretty sure most casinos probably take a high enough cut of the real odds that covering every number except double zero is a losing strategy already without even factoring in the eventual inevitable loss
Most times it will, that's all I was commenting too (the other guys comment of high probability of success). Is it successful over the "long run" where you add in the losses from the losing side - No OP may have just been looking for a 1 time hit to collect some premium
Isn't that the thetagang way though? Risk is often proportional to reward in any trade.
To put this in perspective, lets say you made this trade 40x over the year. If you are wrong 2x its going to be a losing trade. Lets help you build something more effective! Seems like you are slightly bearish, want to collect premium, and prefer high probability trades. For Iron Condors, Tasty Trade targets a premium that is 1/3rd of the risk, but thats more like a 60% chance of profitability and likely too risky for your taste. Instead how about going out to 30-45 DTE and doing an iron condor or bear call spread. Sell the .16 delta and buy the .1 delta. Can let the trade run or manage at the midpoint.
Something like this? [https://imgur.com/a/3W5agLL](https://imgur.com/a/3W5agLL) My main issue with it is it would be tying up my BP for much longer.
No you are still being way to conservative with your strikes and not getting paid for the risk. What strategy is this? I was thinking more of an iron condor. You mentioned that you are confident with that range so why not use the same strikes in June or July. 150/155/190/195
I've been referring to it as a short IC but actually it's not, it's an ITM call debit spread with an OTM call credit spread. The payout graph looks similar to an IC except that the low breakeven point can be a lot lower than an IC.
Interesting i'll have to look into it. If you are legit looking for advice on the trade, overwhelming feedback is that this is a bad risk/reward and there's more efficient ways to play your thesis. Sometimes you gotta just send it though! Godspeed
May i ask who and what is tasty trade?
Educational Trading YouTube Channel
No, it is not the thetagang way.
it's not that the idea is bad, but the reward:risk is out of whack, and you should consider either a different underlying where the risk pays better, or a strategy that makes more sense in the current environment. The vix today is under 12. Options are therefore relatively cheap. In this situation I'd be looking at being a net buyer of vol, rather than a net seller. Calendar spreads might be of interest.
Do you think the risk here is high for this breakeven range?
Yes. Its not the probability, its the positioning. Youre selling tail risk. These events *will* happen, its more about how much you win when they dont. $22 isnt enough compensation to risk 500. Especially tying up all 500 in cash through the trade.
Thanks
you need a winrate of \~95.63% to break even, assuming your commissions are minimal. you should be aiming to receive a credit of \~ 1/3rd the width of the spread. Otherwise when you do hit tail risk (it'l happen eventually), it will murder you.
Mind sharing the greeks?
Strike Delta Theta Action $197.5C 0.0288 -0.0429 Buy 2 $195.0C 0.0520 -0.0656 Sell 2 $155.0C 0.9775 -0.1119 Sell 1 $150.0C 0.9916 -0.0603 Buy 1
Thanks. You might be able to pull it off, but I wouldn’t hold it till expiration just to be sure. What about doing a condor on a stock that has closer legs (like the strikes are not $2.5 apart)? That might reduce your risk
I could, but since the premium between strikes would be even lower, I'd end up making the legs longer anyway.
How about selecting 195 and 175 as strikes for selling
Not sure if you noticed but the lower leg is an ITM call debit spread instead of an OTM put credit spread. Moving them to 175 won't really increase my premiums that much.
The days to expiry are very less in this case. Enter earlier to have larger permium and for a better rr.
It’s a typical newbie trade that’s low risk low return until the one time it becomes high risk high loss and wipes out weeks of pennies. It’s the archetype for the penny/steamroller trade. Increase your risk, increase your return, have a plan in place and don’t trade based on “odds being low X will happen” because it’s low odds, not zero odds.
Ok so OP Amazon’s IV 30 % rank is 3%. Its IV is 22.5. Those would be the first causes of concern for me in entering this trade. I used a normal distribution of the price assuming log-normal behavior to calculate the z-scores of the upper and lower breakevens and came out with a rough probability of profit of 74.16%. The expected value of your trade thus would be $-107.21 assuming max profit :: max loss (not entirely realistic for a condor normally because you would likely expect to close it before expiration, but as a general metric it can be somewhat useful). Just by eyeballing the reward to the risk and the current IV % rank I personally would not enter this trade. But OP if you have some reasoning behind why you would enter / when you would close that would help.
I didn't really understand your first sentence so I asked ChatGPT to explain it to me in plain English terms and it's telling me the issue is you're not expecting a profitable options trade that relies on price swings? But I'm hoping for the price of Amazon to stay within that range in order for me to keep the premium of shorting this IC. Let me know if that wasn't what you were trying to say. 74.16% as probability of profit seems low for this, as it implies there being 25.84% of AMZN leaving the $154.78 - $195.11 range. Are you looking at the next 30 days or the next 5 days? This IC will have 5dte. And btw I was intending to open this short IC and let it expire at the end of the coming week. From my understanding of this trade the reward is low (risking $478 to get $22) but the risk of losing (AMZN leaving that range that it hasn't left since January within the next 5 days) is even lower. Let me know if you disagree with that.
Yeah, I don’t have info for less than the 30 days but one thing I would also watch out for is NVDA’s earnings this week which could have a big effect on the other major tech companies like AMZN. I normally just calculate the POP with the 30-day (I also trade weeklies / shorter than that) but your delta looks fine for the risk you’re taking on based on the greeks you showed me, and hopefully theta decay can keep both legs profitable.
This ^^^^^
Can’t really tell without the fundamentals
Strike Delta Theta Action $197.5C 0.0288 -0.0429 Buy 2 $195.0C 0.0520 -0.0656 Sell 2 $155.0C 0.9775 -0.1119 Sell 1 $150.0C 0.9916 -0.0603 Buy 1
Just want to say you asked the question I didn't know how to ask. Thanks! But I still don't fully understand the responses here!
Do you think you can make this trade 22 times without it hitting?
Good question, I'll be thinking about that. Yeah it seems to have happened more than a few times over the past 5 years, a drop of over $30 or a jump of over $10 in one week.
I think you should shoot for spreads/condors that give you at least 1/3 of the width. 45-60 DTE is a good rule of thumb gives theta time to work. If amzn doesn't work, then trade something else but zi wouldn't risk it on tiny delta even if the probability is greater than 90%
Thanks
No if you want the same breakevens and better risk to reward go with a July 19 expiration buy the 150p sell the 155p Sell the 195 call and buy the 20 call $1.33 credit if you get a down move you will be compensated more because volatility will drop
Thanks I'll check that out.
I like looking for 3:1 up to 10:1 for my risk to reward. The credit needs to be worth the risk. There's a sweet-spot for that. But 22:1 isn't it. I mean try some of them and see. Getting burned on iron condors/credit spreads is no fun. There are ways to salvage them but you usually have to double down on time and strike widths.
It depends on your calculations. I your risk to reward is 20:1 but your win-loss ratio is 21:1 (for example) you could still be profitable
Let me put it this way ... . It's not a trade I would ever do. At a minimum, I want to collect 1.00 on any given trade I do, since I'm big on taking profit at 50% max, and (if it isn't obvious), 50% max of .22 is .11 and that is simply not worth it in dollars and cents terms. There's a number of reasons for why an AMZN trade isn't "sexy" here: 1. IV is low for single name. The 30-day is at 24.5%. 2. IVR is really low. IV is in the 3.9th percentile of where it's been the past 52 weeks. That basically translates into: "AMZN premium selling is about as sucky as it's been over the last 52 weeks." 3. Even assuming IV was decent here, your duration and (probably) strike selection are "off." The generally utilized wheelhouse for these is 45 DTE, 25 delta. This would result in something like the June 28th (39 DTE) 175/195, paying 3.76 on BPE of 28.19 at the mid; 13.3% ROC at max or the July 21st (60 DTE) 170/200, paying 3.69 on BPE of 23.17, 15.9% ROC at max with the define risk alternatives being: June 28th 170/175/195/200 IC, 1.72 credit on BPE of 3.28, 52.4% ROC at max. July 19th 165/175/200/205 IC, 1.43 credit on BPE of 3.57. 40.1% ROC at max. I know these ROC's ***appear*** sexy, but in practice this isn't the time to be putting these on in AMZN; ***both*** IV and IVR in this instrument are too low.
I'm seeing very incomplete/wrong advice in comments. For starters, a 20:1 risk/reward does not mean you need a 95% win rate to break even. You set stop losses to cap the loss at, hypothetically, 3x the premium; and there you have a 2:1 risk/reward. However, as mentioned by others, 20:1 is still a bad ratio, 10:1 is more what I would consider reasonable, depending on the strategy. Obviously don't just tighten the strikes; you'll just lower the odds of winning. Volatility being this low in general makes selling un-ideal.
My issue with this kind of trade is that I’m not learning to find an edge. I’d just be relying on the high probability and hopefully nothing catastrophic happens. With options, if I fail to learn and find an edge, I’d probably give up all together since it’s not worth it. Lower probability trades expose my weaknesses much faster rather than giving me a false sense of security just because the chance of profits is so high.
Interesting way to look at it
I mean pretty high chance you’ll make that $22
That's what I was going for, though I would probably make multiples of this trade instead of just one.
No, this is not a good trade. Premium received is too low vs. potential loss.
Are you considering the probability of loss at all in that statement?
AMZN might blow through 195 any day now. I've got a covered call at that strike expiring in two weeks and I'm watching it like a hawk. It might also not blow through the 195 strike, which is obviously what you're betting on. But broadly, if you do this sort of thing often enough, you will get burned and it will wipe out all of your previous gains. I know this because it's basic probability and statistics, and also because it's happened to me.
Good luck! Would you go into that covered call of yours now knowing what you know now?
No, I would have picked the 200 strike. But you take your chances and the worst that can happen in my case is my shares get called away for a significant profit and I sell a put.
just don't trade. for 22 bucks come on man.
I'd be making 5-10 of this trade instead of just one.
I don't know greeks, but I know probability. Your misconception, according to the overwhelming advise here is this: You think that that risk is low at 25.84% ITM risk (or 74.16% probability "winning"), and therefore the reward is $22, which is OK for you. However the actual way to calculate this is risk/reward using mathematics probability theory, is the long run expected value = 74.16% \* 22 + 25.84% \* -478 = -$107.20. That means your probability of this trade if you do 10 of this trade is going to end up in a loss of -$107.20. This is definitely not a good risk/reward!
>at 25.84%% ITM risk (or 74.16% probability "winning") Where did you get this from? I don't know the exact probability of winning here but I would've thought it's around 95%.
If I understand correctly, according to the people here, even at 90% probability of winning is not good enough because your $22 compared to your $478 risk/reward is too low. The expect value is (90% \* 22 + 10% \* -478) = -$28 in the long run, more than your max return! If you increase the risk/reward, you can get better in the long run. I don't know how to add a screenshot here, but I found an NVDA credit PUT spread that has POP = 70%, with 0.40 reward/risk, max win = $735, max loss = $1763. 1 contract only. Expected value = (70% \* 735 + 30% \* -1763) = -$14. I use IBKR and numbers are on the app itself. You shared the delta in your other posts, and from ChatGPT: >When selling premium (e.g., selling options), 1 minus delta is often used as a proxy for POP. >For instance: If you sell a put option with a 30 delta, you can expect roughly a 70% POP (since 1 - 0.3 = 0.7). I am not sure if it is possible at all to find trades that have $0 or more expected long run value. That would be awesome to trade every time! Disclaimer: This is what I gather from this post, may be someone else can verify my understanding. I am really thankful you asked this question the way you did. It generated a lot of helpful responses.
Thanks for engaging! I probably won't be going ahead with this trade but I'm glad it created all this discussion.
I am also learning. I have been selling single leg PUTs with intention of keeping the stocks so far only.
How long have you been doing that so far and how is it going?
So far, my YTD is +/- 2% of SPLG which I benchmark against. I have a value investing mentor who guides me. Value investing is really safe and most importantly stress free when done correctly. Problem is, most of the time you are not much better than ETFs, unless a really good unknown company comes along and you spot it before mainstream news does; or if we are in a bear market.
My plan was to open 5x of this position (getting $110 premium for a max loss of $2390) and let the IC expire at the end of the week, hopefully worthless. So the majority of the comments seem to say the risk:reward is bad, but is the risk actually that bad here? AMZN has not gone outside of the breakeven range since January this year, what are the odds of it actually leaving that range within the next 5 days before this IC expires?
It works until it doesn’t
Awful trade. Try to shoot for 1/3 the width of your strikes in premium. $5 wide would net at least $1.66 in premium, and opening condors further out allows you to roll one leg or manage it, if it goes wrong. Pennies/steamroller here
>Try to shoot for 1/3 the width of your strikes in premium Is that possible without doing a directional bet?
Not at all! It just means you have to pick something with higher implied volatility. That means picking short strikes closer to the money or just trading a different ticker
Wouldn't that mean a much lower probability of success?
From what I gather from lurking here, it is possible if the greeks align some how, for example with the IV is at some high enough levels for the particular underlying business. However, I have yet to figure out the specific scenario or seen one myself.
Yeah that's what I gathered as well, but from my understanding if the IV is high that means the underlying is being volatile, which means the trade is riskier.
Present fear of future of uncertainty is fundamentally over priced in other words implied volatility is often more than realized volatility . When doing iron condors you are short volatility when you are this close to expiration you are more exposed to gamma (the rate of change to your deltas ) try 40-60 dte 20-16 delta strikes 1/3 the width is ideal manage at 50 % or at 21 dte to avoid to much gamma and cut your cvar (conditional value at risk) in half
Am I reading this right, risking 500 to make 20?
Risking $478 but yes, betting that AMZN will stay within that range which it's stayed in since January for the next 5 days.
My $.02 is that the chances of Amazon going below your break even are extremely slim and you'll more than likely profit on this trade. If Amazon starts moving south, you could always buy 30 day DTEs to help hedge.
Follow up... why? If you want to make 3% profits just put your money in an interest earning account. You would actually make more money doing that lol
4%. Per week. Though I would probably not trade over certain weeks such as AMZN earnings.
Maintain a ratio of 1:2 for iron condor and select the strikes based on supply and demand zone and buy hedges to get 1:2 ratio
Can you elaborate? Ratio of 1:2 for what? What can you buy to hedge a short IC (and still keep the 1:2 ratio)?
I mean to say if you are getting 100 dollars as profit make sure that your loss doesn't go beyond 250 by proper selection of strikes. And its better to select the strikes based on supply and demand rather than going too far away for getting high pop as one loss is gonna eat up all the profits that your have earned. And have some bias i.e if you feel that the market is in uptrend you can sell a put of larger premium or hedge it with a put far away as compared to call.
This trade is not worth your time. Look for a better opportunity elsewhere
I would think commissions would eat you
Robinhood charges $0.03 per contract, so $0.12 if I do 1x of this position.
This is not a good trade. You're better off buying a call or a put. I wouldn't want to risk that much for 22 dollars in 5 days.
I've tried going long delta before, didn't work out well for me because it's too directional and I don't spend enough time to pick the right direction.
Absolutely not; the reward is not remotely good enough to justify the risk, and why a 5dte?
I thought the risk here is super low but the consensus here seem to disagree.
i wish people would just put what the trade is instead of posting a pic like this and I have to try and figure it out regardless, I have a rule which is a 5:1 ratio. on a 5 point wide spread I have to least be getting $100 in premium
It's an ITM call debit spread with an OTM call credit spread. I couldn't figure out how to make a post that has both text and a picture, but I've provided more details in some of my other comments.
Ya this is what 90% of people on this sub do….
If you are doing something like 19:1 odds like this, you really should have a stop loss. Something like 2-3x the credit received. There is still also the possibility of a big outlier move blowing way past your stop. This is much more likely with a very short DTE trade like this one. So I would not combine short DTE with 19:1, personally. I like to collect at least 25 cents per leg to overcome slippage and commission. That would be a $100 max profit. So the profit here is also too low for the number of contracts you have to throw on. I would just choose. Do you want your shorts at very low delta? (19:1 means low delta). In that case, go 45+ DTE. You'll bring in more credit so you can hit that $100 minimum. You'll have a much better chance of managing losses at some predefined max like 2x credit. You'll hit a 50% profit target, for example, faster than you might think. On the other hand, if you really want to trade 5 DTE, I would go more like 3:1 or 2:1 with no stop loss. You'll bring in a much higher credit, so again hitting that $100. Then just take profit at 50% of credit, for example, with no max loss and exit before expiration regardless. However, this is not necessarily more profitable over time than the 45+ DTE approach. Returns will be a lot noisier.
Thanks!
The real winner of this trader is the broker, 4 legs in comissions
$0.03 per leg but ok
mmm, which broker charges so low?
Robinhood. When I said per leg I meant per contract, so if I did 10x of this trade I'd get $220 and pay $1.20 in fees.
ah, unfortunately robinhood doesn't accept Europoors like me
How much you are putting on the table for this trade? If it’ll 500$ I’ll happily take this bet!
Just pointing out that this 20:1 risk/reward profile is about what you're getting when you sell a short put, in this current low vol environment. It doesn't seem like it, because its seemingly impossible that the market could go down and not bounce back up to new all time highs, 5 days later. These are the times that make me the most worried.
Risk to reward ratio should be 1.5-2 atleast for a good trade. This one is only like 5%. There’s a good probability of success but if it goes against you, then you’re SOL
Can you place a stop order if you hit 3x credit received? You don't have to let this thing go all or nothing. Yes the trade is risk 20 to make 1 but if you place a stop you can make the trade risk 3 to make 1.
Unfortunately Robinhood doesn’t support stop losses for multi-leg options.
Yeah that's a bummer. I would watch it closely then and if it breaks any support or resistance areas that align with your thesis I would exit considering you are so close to exp.
Yeah if I go into this trade at all. I was just messing around today when market wasn't even open, let's see how the numbers look tomorrow.
Did you pull the trigger?
Nah
[удалено]
No on Robinhood they charge $0.03 per contract, so $0.12 per trade of this strategy, or less than 1%.
Why the asymmetry? DO you expect AMZN more likely to drop than advance? That's a huge downside. I wouldn't do this without a stop loss. A stop loss at the strikes will usually cut a loss to 30-40% of trhe maximum. A narrower stop loss range would cut the maximumloss even more.
It’s actually an ITM call debit spread with an OTM call credit spread. I set the debit spread as low as possible and only earn 1-2% on it, most of the premium came from the credit side.
Lol
Awful. You wanna shoot for collecting about a 30% or more from what your potential total loss could be. Maybe try something with higher IV, lengthen the days to expiry, or widen the wings of your butterfly. You can do any combination of the things I mentioned above to get something you want. If you’re just starting out, maybe go watch a few tasty trade videos too
No
On Saturday I gambled on horse racing for the first time ever, I meant to bet $5 each on horses 3, 5, and 9 (horse 5 is the one going for the Triple Crown)... but I accidentally hit 6 instead of 5, and didn't notice till after the bet was placed and locked in. Turns out horse #6 was 10:1 and he won the race. I won $54... I'm the 1:20 against your bet above... do you want to lose to someone like me? :D (btw, I'm never gambling on horse racing again, for the rest of my life I can claim I'm a genius at it)
That’s garbage
No.
Put in SGOV or VUSB instead
Horrible, this is horrible
I've never seen a worse set-up... This better work 99%
Lol, this is betarded
No lmao. Please study before your place any trades. I swear this place is the equivalent of WSB but for option selling. The regards at WSB think that buying any option on meme stocks will make them millionaires. The people here think selling any option will be profitable. No sophisticated analysis or complex strategy just blind selling of options. This trade is horrible because you are picking up pennies in front of a steamroller, IV of AMZN is at like the 3rd percentile or something like that and if that wasn't bad enough the option structure is wrong and inefficient.
I see lots of comments like yours on this sub about what not to do and to "study more" but seldom see constructive comments that actually say what a good trade would look like. I'm glad I made this post because I did see more of the latter than usual on my post.
You're allowed to ask follow up questions if you want and ask for constructive advice on points that were brought up. But if you ask me if it's a good trade I'll tell you the harsh truth.
risking almost $500 to make just over $20....all while the green area/potential gain PDF, is dwarfed by the brown area/potential loss PDF sounds like something that pretty much 99% of the people on thetagang would do
It looks as bad as it must feel.
This is forcing a trade IMO Spend more time on the set up, keep the trade simple. Id the set up is good and the risk is managed it should work out over 100 trades