The Reward of Pause

Fifty Ways to Trade an Option

Persistence is a valuable attribute in a strategy. If you can find a method that works across multiple different environments with few adjustments, that is highly desirable.

Even with lower Sharpe ratios or returns, the quality of “set it and forget it” is worth a lot. There are the obvious time constraints on implementation, but being robust to the known set of distributions makes it all the more likely it will also be so in the future. 

We know very well we can’t do that with options. Mechanically because of expiration, and theoretically because of the realities of pricing volatility. Every strategy requires adjustments to overlay levels, ticker selection, or just plain risk off. 

Of all the tools in my quiver, the closest there is to a persistent position I want to have is an index iron condor. Don’t quite “at” me yet - I know the history books are littered with over exposure to the premia, and there are gobs of institutional shorts here that demonstrably cheapen the edge. 

Options are always a game of numbers and probabilities, but sometimes they are also about outcomes. Picking the correct delta direction in a spread or getting just the right amount of upside in an overlay. With a covered call you have to think as much about stock selection as options risk exposure. 

Strategies like the index iron condor sit squarely in the numbers camp. Outcomes played out matter trade by trade, but this structure is the closest retail traders can get to a systematic risk premium capture just by playing their (expected positive*) odds every day. 

If you’re going to bet with the law of large numbers, you have to play large numbers. Second guessing and manual overrides is not the same strategy as always being short a bit of vol, because “VRP”.  It’s hard enough to consistently eek out this premium, excessive discretion pollutes already muddy waters. 

EXCEPT this week. If there’s ever a time to pull off the gas, think about it today. I’m not fear mongering or prognosticating market direction or magnitude. Just consider the risk/reward of being out. 

Today in 50 Ways to Trade an Option, we’ll talk about how to apply that teeny ounce of discretion you’re afforded when trading short term condors. 

The basic strategy here one of my newest offerings at Harvested, a short term iron condor bot developed by PeakBot. Every day the bot sells a condor at roughly 25^ and $1 SPY/$10 SPX wide. Bids are put out to close either wing for a nickel - something that regularly closes individual sides as the market bounces around. 

The goal here is to capture a flavor of the volatility risk premium, and hold your risk managed breath as theta melts into dollars. There are good theoretical reasons why the decay curve functions the way it does, but a lot of the extreme moves are capped by your tight spread.