As Jim Bittman has wisely observed, we have had weekly options once a month since options began trading, so the concept should not be entirely foreign. What’s new is that we can now trade weekly options every week and these options have grown enormously in popularity.
Many options experts have traditionally advised clients to close their options positions on the Friday before expiration week. The reasons are twofold. First, wide swings in price and volatility are common during expiration week. Secondly, gamma is large as expiration approaches for any options whose strike prices are near the underlying stock or index price, i.e., ATM (at the money). This adds up to a higher risk of a detrimental price move in our options position. Layered on top of that risk is time; the change in value of a weekly option from day to day or over a weekend can be dramatic.
The iron condor is a popular options strategy, but many have found to their chagrin that it is far easier to establish the iron condor than it is to manage the position in volatile markets. In my Flying With The Condor™ service, we only had three months out of 2011 that did not require adjustments in the position. In many cases, as many as five or six adjustments were necessary to salvage a gain or minimize the loss. So managing the iron condor position is the critical skill necessary for success with this trading strategy. And the Flying With The Condor™ has now posted a 39% gain for 2011 - and that includes that market crash in August.
However, if I establish my iron condor position with weekly options, adjustments aren’t feasible because insufficient time is left in the trade, and the position can move too far overnight or over a weekend. Thus, the iron condor with weekly options becomes a binary trade – I either win or lose and can’t really do much to manage the trade other than simply closing the position when it moves against me. If I can’t manage the iron condor, it is highly unlikely that I can achieve long term profitability.
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