Iron Condors Traders
My original point was not for getting into the IC but when the position is in place. Maybe it is just me but lately the market is volatile during the day and no much changes on close-close basis
There is a subtle reason why legging into iron condors is more difficult than one would imagine: Implied volatility (IV).
Let’s assume that you attempt to leg into the trade by selling the put spread first - and are correct in your timing. The market rallies, but you discover that the call spread just does not increase in value. And if it does increase, the gain is so small that it did not compensate you for the risk involved in taking the leg.
Most rallies are accompanied by a decrease in IV. When dealing with out of the money spreads, any reduction in the IV of the options that comprise the spreads causes the spread to be worth less – and thus, it is difficult to get a good price when selling. We must also remember that the delta of the spread (note this is not the delta of the individual options, but is the difference in the option deltas) is small - so small that it takes a decent-sized move to change the value of the spread. When IV is declining, even slightly, it becomes all that more difficult for the call spread to increase in value.
As unfortunate as that is, legging should work better when you sell the calls first. Obviously, one does not sell the call spread unless the trader wants to bet that the next market move will be lower. If the trader is correct in his/her timing, and if the market dips, the increasing IV (that accompanies most declines) when added to the effect of a small change in the spread value due to delta, does give the trader a good chance to complete the iron condor at a favorable price.
All in all, I’m not a big fan of legging into these trades.
I'm much more conservative on the put side. As Mark points out, the IV will allow me to sell smaller deltas on the puts and still be worth while.
When I start out with calls or puts, I'm not sure if I will ever sell the other side. I await opportunities.