11/5/2022 0 Comments Condor 2 vs condor![]() ![]() While generally speaking we want to trade directionless sometimes it is difficult to trade without direction. Oftentimes even if you think liquidity is there when you enter a trade, it promptly seems to disappear when you need to exit.īy choosing strikes with the higher volume you can help leave avoid being at the mercy of a market maker and get a fairer fill. This is not a major issue for the most popular stocks but for smaller illiquid options chains it can pose a problem. 100) will have greater liquidity and open interest than other numbers (ex. Sometimes liquidity can be better for either the ATM or slightly OTM strikes. *To note: As the underlying price moves vega changes.įor example, if the price moves outside our wings, we can actually become long vega. If you are getting a credit of 20 cents to put on the trade you probably need to avoid trading the underlying or switch to a straight short straddle. When you pay out a big chunk of your credit in commissions and slippages that eats directly into your edge. With an underlying under $20 an Iron Condor is simply costing too much. More contracts, more commission and slippage. Conversely, we could sell more Iron Condors to get the same vega exposure. This is because changes in vega affect ATM options the most.Īt inception, this allows us to be more sensitive to the short vega we want. This means that for every point change in implied volatility the Iron Butterfly will make or lose more money. Smaller more frequent winners or bigger less frequent winners.Īs the Iron Butterfly sells options at the money it will have a higher Vega exposure than the Iron Condor, on inception. Neither of these is inherently better than the other. Yet achieving that maximum profit would literally involve the stock pinning to the straddle price, very unlikely. If the stock stays completely unchanged the Iron Butterfly will make more than the Iron Condor. In contrast, the Iron Butterfly has a higher credit initially and thus maximum profit. #CONDOR 2 VS CONDOR FULL#We have a much greater range in price to receive a full profit of our credit on expiration. The first thing we notice visually is that the Iron Condor has a wider profit zone than the Iron Butterfly. ![]() If we don’t want to express the view on volatility above, then we simply don’t make the trade. You may end up carrying a rug you didn’t want in the first place. Yet, doing so when you don’t even want a rug is detrimental. It’s beneficial knowing the nuisance of the fabrics and haggling to get the best price. Our exposure to the greeks are as follows for both structures on inception:ĭelta Neutral, Short Gamma, Short Vega, Long Thetaīefore this article delves into the differences and when to place one trade structure over another it is important to stress that this is your view. This is from our long wings on either side of the position. To protect ourselves if we are wrong, we also have our losses capped. Simply put we think the stock will move less than the market expects. The structures express an almost identical view.īy placing this trade, we are conveying that we expect that the implied volatility on the underlying is overpriced. Looking at these structures visually they are quite similar. What Is The View I Am Expressing With These Trades? In contrast, an Iron Butterfly is created by selling an At the Money (ATM) straddle then buying a further OTM strangle, shown below. The BasicsĪ Short Iron Condor is created by selling an out of the money (OTM) strangle and then buying a further OTM strangle (wings) as downside protection. Then we will practice evaluating which one is best. In this article we will explore their commonalities and differences. This article will explore two very similar structures, the Iron Condor and Iron Butterfly.īoth express a short volatility view yet there are some small nuances that separate them. With so many different combinations and fancy names it can be challenging. Sometimes it is difficult to find the right option structure to express the view you have. What Is The View I Am Expressing With These Trades?.Let’s take a look at the Iron Condor vs Iron Butterfly and decide which is better. ![]()
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