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Credit or debit trading bb and condor

Discussion in 'Options' started by Venrcew, Sep 16, 2016.

  1. Venrcew

    Venrcew Well-Known Member

    Guys which one is better to trade bb or condor and why

    1) Generate a moderate credit on initializing the trade

    2) Having debit on initial trade and use adjustments to get credit to cover the cost and get credit
     
  2. Marcas

    Marcas Well-Known Member

    Venrcew,
    'it depends'.
    If one way was better than other everybody would be trading it.
     
  3. Venrcew

    Venrcew Well-Known Member

    Marcas depend on what? Seems the second has more commission compare to the first but the first is likely to get more credit with the second difficult to attain the same credit
     
  4. Marcas

    Marcas Well-Known Member

    Venrcew,
    I'm no expert and I dont feel this way, remember this.
    In spread it almost does't matter if you got credit or debit on entry. Let's say we have spread 10 points wide so $1000 is max what you can get out of it (skip commissions for now). It is very unlikely that you will grab full amount. Usually your gain will be credit you received in case of Credit Spread (CS), let it be $400, or difference between max gain minus what you paid in case of Debit Spread (DS), let it be $1000-$600 where $600 is price of entry into game.
    So in first case you will see $400 added to your account (it will be locked until you are in trade) or $600 will be taken from your account and credited to your counterpart.
    From practical point greeks will be the same in both Spreads, thus you will not be mistaken if you think that this is same trade. Difference will be in exits – if you ride it to expiration or exit before that - either case you will pay more in slippage trading ITM options or pay more in commissions if you are exercised.If you are new to trading I would say this difference is negligible unless you are trading low price options - then commisions will be proportionally high and can eat your profits.

    Now, if your Spread is your main trade it is better, imo, to trade CS because of above costs, but if you are trading smth bigger and your Spread trade is just minor (doesn't mean unimportant) adjustment – it doesnt matter if you use CS or DS. Your choice will be most likely dictated by what this trade do to your margin requirements. In this case most likely you will use DS but it is dependent on trade you adjust.

    That was about question : credit or debit.

    Regarding Butterfly vs Condor. They are similar trades – in theory. One CS and one DS.
    In practice they are different trades, you manage them differently.
     

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