Nassim Nicholas Taleb, author of the widely discussed The Black Swan and Fooled By Randomness, is out with a new paper. “The Fourth Quadrant: A Map of the Limits of Statistics”pursues a thesis very familiar to his readers, namely that economistsand finance professionals put society at risk by offering false comfortin the form of statistical models.
Risk Does Not Equal Volatility

What should you do when the underlying moves against an iron condor position you have open?

Since we opened our first trade for March expiration, the S&P 500 index is down almost 100 points - that’s a loss of over 6.6% in a little over one month, and the index is now off 12% from it’s January open. Happily enough, our March trades averaged 8% return on capital risked...

As many of you know, the major indices are at a pivotal, well …pivot. The SPY, IWM and others are in a position to retest the swing lows set in January 08.

XLF, the Financial sector ETF, maybe double-bottoming here in the short term. Or it may not. But implied volatility in the April options is at 49.81%, and we know for sure that implied volatility in the options is well above the historical volatility, so we want to sell a little bit of premium here.

We’re opening the following iron condor for April expiration...

It’s been over three months since we posted a takedown, and you guys are getting restless. So, Monthly Cash Thru Options is one site that people seem to request a lot.

I won’t be the first to say it, but certainly won’t be the last… it may be time to get long.

In this article, we present one of the simplest methods of constructing iron condors. The idea is to select short strikes that are one standard deviation (one sigma) away from the current underlying; trades constructed in this way will have about a 68% probability of success, assuming the price curve over the life of the trade is normally distributed.

If you’ve ever used the thinkorswim desktop platform, you may have noticed the little ‘Spread Hacker’ tab in the software. This isn’t a feature that gets talked about much, but it’s fun to play around with. While this may or may not be the original intent of the feature, it’s especially useful for generating slightly wacky ideas that you might not otherwise have considered.

Really exciting title, huh? Anyway, several members have asked about this recently, so there are probably more of you out there who are interested.

As we look ahead through 2008, it seems increasingly likely that the U.S. economy is going to fall into recession, and many of our readers have been asking whether our strategy is appropriate for a bear market. One of the most common assumptions people make is that it’s better to trade condors in low volatility, non-trending environments. This is an understandable assumption.