Frustration becomes opportunity

One of the things people like about Collective2 is that there are systems for almost every type of trader and for all of the major trading instruments. That’s why I was frustrated to see that there are no active systems that trade Iron Condors. If you search for “Condor” you’ll find 13 systems - none of which are active.

For those who do not know much about Iron Condors, they are among the easiest and highest win percentage options trading systems currently available, and are used by many professional traders for reliable income generation. They are independent of market direction and have both a maximum defined risk and maximum defined reward. They are constructed from 4 different trades (2 puts and 2 calls), and are a bet that a given stock or index will remain within a defined price range until the options expire. If that happens, the seller (you) makes money. And the best part is that you get to define both the range and timeframe for the trade!

The lack of any active Iron Condor systems is a glaring hole in the “trading tapestry” here at C2. So I have decided to start one here - announcing Pangolin IC, the only active Iron Condor trading system available on C2.

Pangolin IC will trade Iron Condors on the OEX, SPX and RUT weekly options. Only three trades per week, opened every Thursday Morning and closing the following Friday. Each Iron Condor will be structured such that the trade has a 90% probability of closing profitably. The trades may be adjusted as necessary in response to significant market action but the intent is to let the trades expire rather than close them early.

The systems is easily scalable for accounts as small as a few thousand dollars, although I would suggest at least $10,000 as the lower limit to help reduce the impact of commissions.

I hope this will be of interest to traders here. I’ll be putting in the first set of IC’s tomorrow night, and am providing a 14 day trial period - enough to see at least six trades placed.

Here’s an example of an active condor system on C2 (Index Spreads)

This system was wildly popular here for quite some time. However, as you can see, it has returned only 7% a year while going through some massive drawdowns. Many such systems have been tried here and to my knowledge none of them have been successful.

“Index Spreads” uses only part of the Iron Condor - if you notice this system does not take both “wings” and trades only on the monthly options. In that way you are not taking advantage of theta decay as you might if you are using weekly options. But thanks for pointing this out - credit spreads are another typically reliable option strategy for income generation. Not sure why the drawdown here was so large - the system would have done better using mutliple credit spreads with smaller amounts at risk for each. Also, one needs to position your credit apread at a delta of 0.10 or less - this leads to lower returns per trade but builds in a much higher safety margin.

Hello Kevin,

I wish you the best with your new system.

I would guess the main reason that there are not more Condor or other Spread strategy systems is that C2 does not allow for entering Spread trades as one trade. A basic Spread has to be entered as two individual trades, and an Iron Condor as four, where these are usually entered as one trade, with one Limit price for the group – unless one is legging in. If one needs to adjust an Iron Condor, one is looking at eight individual trades.

With .10 Delta trades, any slippage on any legs of your spreads/condors can really bite into the returns, which are tight at these Deltas.

Agreed - and as I am just now finding out, the way C2 handles margin seemes inconsistent with most brokers as well. The normal margin requirement for a vertical spread is simply the maximum amount at risk - e.g., if I buy 10 contracts of the SPY put at at 176 and also sell 10 contracts of the 178 put, the margin I should be required to have is just the difference in what I would owe versus what I would be paid - in this case only $2000 at risk. However, C2 seems to require full margin for each trade (as if it does not see the vertical spread). Are others encountering this?

Yes, I have experienced this, although, I don’t think it always works the same at C2. It is a real issue.

Another issue is fills: it can be tough to get filled at better than the Ask [at C2], especially if you are trying to put together a Spread and do not want to get caught “legging in”, if “legging in” is not your trade plan. Again, with tighter returns on higher win percentage set ups, this can be a real downer.

I would rather see upgrades to the site that address these issues, rather than new page layouts.

Well, I set up Pangolin IC with an initial equity of $25,000, figuring that would let me do several ICs at the same time since there is a short period of overlap between weeklies (you buy on Thursday and they don’t expire until the next Friday). I could not enter more than 1 IC, with a total at risk of only $2000, before I was told that I no longer have enough margin to put in any more spreads. That is incredibly limiting - peraps that is why you see no IC systems here? Matt - if you can comment that would be great.

I think C2 charges margin on both sides of the IC, rather than just one side as most brokers do. That explains part of the margin issue - even if that were the case, I could work around that by taking smaller contract sizes. But I think there is more here, as I am guessing that the purchased puts and calls are not offsetting the sold ones as they should. Matt? Enlightenment, por favor.

As you have discovered, C2 does not recognize any complex option strategies in regard to order entry or margin requirements.

That’s why I had to terminate my option trading system a few years ago.

I have had several discussions with Matthew about this and apparently option trading isn’t a high priority on C2. So he is aware of the issues, but it probably won’t be fixed in the near term.



In the FAQ, you’ll see the following:

“For stock options, we assume you will receive the most favorable minimum margin requirements allowed under Fed regulations. (Long option purchases require 100% of the purchase price in cash.)

The software recognizes spreads and straddles and condors, and will take into account the lower margin requirements available for certain less risky positions.”

Not seeing it so far.

After having a discussion with Matt on this, if one places the verticals as BUY order first with the sell as a conditional second order, the individual wings of the condor can be put in place. This still deals with it incorrectly, as it requires you to have 100% of the BUY order as available funds in your account, rather than only the amount actually being placed at risk. Margin is still treated incorrectly and will not be fixed in the near-term, so the trade sizes will need to be smaller than I normally would use for an account of $25,000.

What will be correct are the signals, just now placed as much smaller trades. This will impact the % equity gains a lot, but I don’t see a way around it at the moment. I would not suggest autotrading this until the margin issues are corrected, but the system can be easily traded manually at any scale since we are only talking about two trades per week.