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Mixing It Up…

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The Option Income ‘Cash Grab’

A great iron condor adjustment technique that works with good success is to ‘mix up’ weekly options with the standard monthly options when running our regular ‘bread and butter’ income trades.

For example in one of our recent options trading lab paper trading case studies - the trade went on as just the standard iron condor spread. But, thanks to the big huge unrelenting run up in the RUT that we saw – we reached a point where we needed to apply adjustments on the up side of the trade.

At a certain point during this adjustment process – our trade was a bit lop-sided as we were removing spreads that had diminished in value. During this process there came a point where all the put credit spreads were removed – leaving he position with a risk graph that looked like just a plain call side credit spread. This was on Friday – with the weekend ahead – and still a few weeks until the standard monthly option trading expiration.

This presented a great opportunity to try and take advantage of some potential weekend time decay – however we weren’t really ready to sell some additional put credit spreads as the run up had been so big it seemed as though a pull back was inevitable – and selling a standard monthly put credit spread just seemed to potentially ‘stick us in the game’ for too long. If there was a pull back we would most likely need to start messing and adjusting the new put credit spread and probably do so until expiration day.

The put weekly options though provided a whole different opportunity.

Using the weekly options to sell either a ‘full load’ put credit spread set – or even just a few additional put spreads – would be ideal. It could give us just that little extra ‘boost’ of potential cash flow from quick weekly options time decay – a situation where we could just sell a few extra put spreads – get that quick credit into the account – and then get rid of them early the following week.

Again, weekly options are ideal for this. Yes it is true that you will likely not get as far away from where the underlying is trading at then when using the longer term monthly options – but on the other hand these weekly options will bleed away at a much faster pace – and when positioned correctly you should be able to make your quick cash grab and then get the heck out before the underlying is able to cause any serious damage.

To discover how to learn more about our simple method for consistently making these types of iron condor trades along with other reliable income producing trading strategies – be sure to join our free options income trading newsletter by clicking here

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Double Dipping From The Option Premium Pool


Double Dipping Option Spreads

In this last months iron condor paper trading lab, we had the good fortune to take a nice big ‘double dip’ from the ‘option premium pool’ in a way that we’ve never been allow to before.

Whenever we place these iron condor spread trades or credit spread trades, we immediately set up contingent orders to buy those sold credit spreads back at levels that will give us our predetermined profit targets. For example, when getting into the trade we’ll place our trade as one complete four legged order – but then, as soon as the trade has gotten filled, we will set up two contingent orders to buy back each credit spread leg separately. We would rather get out of the trade in two individual orders rather than one order. We want to set up a contingent order for the call credit spread – and one separate order for the put credit spread.

The reason why is that a lot of times, one side of the iron condor will lose value much faster than the other – allowing us to actually get out of that spread at very small debit. A debit that is either at – or below – the price level (for that side of the trade) that will give us our profit target for the entire trade.

A lot of times the underlying will make a big move right after we get into the trade – and if the credit spread on the opposite side of the move almost immediately hits this ‘buyback level’. Even though there is some premium in the spread – it’s very little – and it really doesn’t make sense to hold onto that little insignificant amount of credit in that remains in the spread until the end of the option expiration cycle. It makes much more sense to just buy it back at the minimal level and reduce all the risk on that side of the trade.

What it ALSO does, is that it allows us to potentially ‘Double Dip’ from the Options ‘Premium Pool’ – allowing us to potentially make much more profits.

And that’s what happened last month.

Just one day after we put on our initial iron condor position, some good news came out on the economy and the market spiked – causing some weird pricing issues in the options in our put credit spread. The contingent order we had placed the day before (immediately after getting initially filled on the iron condor) got filled – at .10 BELOW the price we had it set at – giving us an even better profit on that side of the trade than we had hoped to get when we set the order up. We made our full expected profit on that side of the trade in just one day.

Then – we immediately looked at the puts on the option chain to see if we could sell another put spread trade to replace the one we just closed out – and we found that the put spread that was just one set of strikes up – just 10 points in – gave us a credit that was exactly the same amount as the one we had placed the day before.

So, simply because we had set up that contingent order right after getting into the initial trade – and then resold another set of put spreads the next day as soon as we grabbed the bulk of our profit in the first set – we were able to just about double the premium on that side of the trade – which then allowed us to either continue playing the upside normal and increase our total profit in the entire iron condor trade – or – it also allowed us the option to get out of the entire trade early – even if our call credit spread never reached it’s original buy back levels. We now had the potential to get out of those call spreads early if we wanted to – at the same price we got in at – or anywhere between the original price and our initial profit target buy back level.

For more on trading iron condors like this – including how to learn our super simple step-by-step Iron Condor ‘Recipe’ and Adjustment Techniques – be sure to join our FREE Iron Condor / Option Income Trading Newsletter by CLICKING HERE


 

 

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Squeezing Out The Risk In An Iron Condor Trade


Last month was a grueling one for a lot of iron condor traders. The market just continued going up and up and up. And when the market continues climbing upwards and upwards, and the volatility continues to leave the options – there is very little premium left in any of the options above the spread to make any sort of appropriate or workable adjustment.

And, of course, with these types of months, the underlying will usually just about reach striking distance of the short strikes close to that last week of expiration – where there is just really no time premium left anyway.

So, what to do?

What can work well with these types of slow, relentless moves upwards, is to simply stay right on top of the trade all the way through. Instead of waiting until the last minute to make an iron condor adjustment – say when your position gets close to your first adjustment point - instead continue to adjust your trade slightly early – using a technique we like to refer to as ‘suffocating the risk’ in the trade.

In the iron condors risk graph above you can see how this type of position can look towards the end of expiration. By staying ‘right on top’ of things you can keep the majority of the premium in these trades while continually adjusting – something that usually can’t happen because when not adjusted properly the hedges will simply eat up most if not all of the premium in the ‘profit tent’.

To learn how to find out more about how to trade iron condors like this – along with a lot of other unique option income trading strategies – be sure to join our free option trading newsletter by clicking here.

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How To ‘Suffocate’ Trading Risk In A Credit Spread


While the stock market has continued to climb higher and higher over the last few weeks, in our most recent iron condor paper trading lab case study we’ve managed to stay ahead of it’s ascent through the use of our ‘constrictor’ adjustment…

Sure, quick fast drops in the market can be scary – but on the other hand, the occasional relentless grinds upwards – you know the type – the ones that just continue to go on and on on – well, those upward moves can be pretty torturous for iron condor traders as well.

At least when the market crashes, the volatility goes up, increasing premiums and allowing for some potential continued juicy credits to be brought in to combat the move – nice thick credits which can come in real handy with proper adjustments to the trade.

But those non stop upward climbs – where the volatility stays steady – or even worse – drops – potentially leaving you in a spot where there’s just no real premium to be found in any potential trade repair – well those types of moves can be pure misery -

Unless – you’re able to stay on top of things and keep ahead of the move.

Our ‘constrictor’ iron condor adjustment can do just that – and it’s a great method to use in those situations – one that can be perfect with those relentless upwards moving markets.

Here’s our definition of this options hedging strategy:

“The Constrictor Adjustment: An Iron Condor Adjustment that kills its prey by coiling tightly around it, causing suffocation.”

With this hedging technique, we stay slightly ahead – or at least, we ‘keep pace’ with the move in the underlying stock / index – by rolling our spreads ‘inwards’ as the trade progresses – at the correct times – banking the premium that has fallen off the initial, older spreads – and replenishing our ‘premium bank’ – or our ‘adjustment fund’ with new credit spreads closer to where the underlying is trading at.

When done correctly, this adjustment can eventually ‘suffocate’ the risk in the trade and create a trade where whatever risk is left can be flattened out and easily managed.

Keep an eye out for more up coming where we’ll get more into these types of trades / adjustments – and also be sure to join our FREE iron condor option income trading newsletter for info on how you can learn more about this type of option trading.

To Learn More Join Our FREE Option income Newsletter by CLICKING HERE

 

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Iron Condor Adjustments – One Of My Favorites…


This last month in our Iron Condor paper trading lab we had the opportunity to use one of our favorite Iron Condor Adjustments. We don’t have a name for this one yet, but we’ve bribed our students to help us come up with one so stay tuned to see what we come up with.

At this point in the trade (see risk graph below), this position has a ‘guaranteed profit’ locked in at the profit target we initially set at entry of the trade: $550.

If you look at the risk graph below, the straight horizontal red lines on the right and left sides of the graph represent our ‘worse case scenario’ at expiration – and it is a profit of $550.00 – which was our initial profit target we set when we first placed the trade.

In other words, no matter what happens from this point forward – the worst thing that could happen is that we walk away with our initial profit target of $550. Not too shabby.

And since this trade is placed on a cash settled index – we don’t need to worry ourselves with having the underlying put to us either before or at expiration for any options that are trading in the money. It’s cash settled. So this is truly a ‘set it and forget it’ walk away trade where we could climb into our 1970s Pinto and drive down into the Amazon jungle for the next three weeks and not have a care in the word what happens to this trade. We know that worse case scenario we are going to bank our initial profit target of $550 – and best case scenario (see the tip top of the triangle) we could wind up with a profit of around $990 – close to double our initial profit target.

On the other hand, if we decided to watch this iron condor trade through to expiration, we could simply exit the trade anytime we want to with a profit that could range anywhere from our initial $550 profit target all the way up to that $990 – as the white current profit and loss line will begin to bend and bow up to meet the top of that triangle.

And again, as already mentioned – the tip top of the triangle represents our ‘lottery ticket’ – although this lottery ticket is the best kind – where there is absolutely no risk of loss – in fact at the minimum there is a $550 profit.

If the underlying winds up at 775 on expiration day we win that jackpot and bank our max profit potential: $990.

If the underlying winds up somewhere between 770 and 780 at expiration – we will profit anywhere from our initial $550 profit target all the way to that $990 max amount.

And finally – once again – if the underlying winds up anywhere else – we bank the $550 profit we set out to make at the start of the trade.

This type of iron condor adjustment/enhancement is one of my favorites and is part of the reason I love trading option strategies so much and find them so much fun.

For more info on how to learn more about this type of iron condor / options trading be sure to join our free iron condor option income trading newsletter by clicking here. IT’S FREE!

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Iron Condor – Bullet Proof Iron Condor? – Part 2


Iron Condor – Part 2

In this post we re-visit an iron condor trade / iron condor adjustment from one of our options trading lab paper trading case studies during one of the more difficult months for iron condor traders in 2011…

August 8, 2011

The stock market continued it’s wild dive today in response to the S&P down grade – with the SPX index losing an amazing 75 points and the RUT index plunging another 63 points. The VIX shot up to around 48.

Here is a current 2 year look at the RUT index chart…

RUT Chart

And here is how our Iron Condor trade is making out….

There are two things to mention here:

1. First, take a look at how far the index is trading OUTSIDE of the iron condor ‘profit tent’ – at this point it is almost EIGHTY POINTS PAST the iron condors sold put strike.

2. Second, take a look at the profit that is showing in the trade: $2,447.00 profit – which is  right around a +26.3% return – and more than DOUBLE the maximum profit potential available in the profit tent area – or another way to put it – more than DOUBLE what was the expected best case scenario when this trade was first put on.

And once again, this was accomplished through using just 1 very easy to implement iron condor adjustment that was made to this trade DAYS before.  Nothing else was needed.

For more info on how to learn to trade and adjust iron condors like this, join our free iron condor / options income trading email newsletter by clicking here

 

Technorati Tags: Butterfly Spread, Credit Spread, Iron Condor, Iron Condor Adjustments, iron condors, options trading, weekly options

THE SKY IF FALLING. And Our Iron Condor Is In…PROFIT?


 

As we all know the market has taken a major hit over the last 10 days.

The RUT, one of our favorite trading vehicles, dropped a total of 136 points during that 10 day time period – or about -16.3%.

On average, we iron condor traders know (and PLAN FOR) several of these problem type months to come along every year . However, a move this big in this short of a time frame is even more that what we normally expect.

EVEN SO – as you’ll see in our options trading lab paper trader case study below – as long as we educate ourselves on how these strategies work and apply proper trade management to them – these wild gigantic moves don’t need to be something we should fear.

IN FACT – with proper trade management – not only is it possible to survive these huge moves WITHOUT experiencing big losses – it’s actually possible to wind up seeing a pretty decent PROFIT.

Here’s a look at the trade…

As luck would have it, we placed this case study trade on 7-22 – the DAY BEFORE the market started it’s huge drop. Below is a chart of the RUT showing the huge move that was made…

Below is a screen shot of the trade shortly before the one and only adjustment was made to this trade – which was based on the management and adjustment rules / criteria that you can learn more about by joining our free newsletter by Clicking Here

After the adjustment was made, the RUT – along with the rest of the market – continued to make it’s huge drop.

The entire time, this iron condor position was NEVER in any serious danger – NEVER exceeded our pre-determined stop loss point – and in fact – actually began to show an INCREASE IN VALUE as the market continued dropping.

The screen shot below shows the iron condor position on 8-5 with the RUT near it’s low point of 698.

2 THINGS TO NOTICE HERE:

1. Look how far the RUT is trading OUTSIDE of our iron condor profit tent – almost 30 points PAST our short strike.

2. Look at the current profit shown in the trade – $742.00 profit – or about a +7.9% return.

And again, this was accomplished with just 1 ‘super simple’ adjustment that was made to the trade DAYS before. Nothing else was done or needed.

For more info on how to learn to trade, manage, and adjust iron condors like this, join our free iron condor / option income trading newsletter by CLICKING HERE


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Iron Condor – Options Trading Mistake #1


 

iron condor

Over the next several posts, we’ll be going over the top 10 Iron Condor / Option Trading mistakes we’ve made ourselves and we’ve seen our students and others make. Experiencing and then learning from these ourselves and/or watching other traders make these classic mistakes has helped us save thousands of dollars in losses and hopefully can help you learn from and save money too…

IRON CONDOR / OPTIONS TRADING MISTAKE #1

Believing In A ‘Magic’ Can’t Lose Options Trading Strategy (like the iron condor)

When I was first introduced to the iron condor it was presented to me as a ‘magic, holy grail’ type of trade where it was nearly impossible to lose. And the argument and reasoning I was given to prove it was certainly strong. Enough so that I swallowed it hook, line and sinker.

Read the rest of this entry »

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Iron Condor – New Video on the Basics


New video covers the pros and cons of the iron condor as it is becoming a popular option trading strategy. While this strategy can produce impressive, passive results, it’s important not to forget that along with this trade come some potential pitfalls that every trader should get to know and understand.

Even though the iron condor might sound like a complicated strategy – it is actually quite basic and simple. The iron condor is just two separate spread trades – a bull put spread placed below where the underlying is currently trading at – and a bear call spread placed above.

Iron Condor – For Beginners?

When asked if the iron condor is a suggested trade for beginning options traders to be putting on, the answer is both ‘yes and no’ – however the strategy really is not recommend if the rookie option trader hasn’t had good, basic training in how options work and how to correctly and effectively manage risk with these types of trades.

A well known potential hazard of the iron condor strategy is it’s risk to reward set up. The potential loss that comes with this trade can be so much greater than the possible reward.

For example, lets say we place an iron condor trade where the maximum possible gain is $5,000. With this trade, it is entirely possible that our maximum possible loss could be around $25,000 – or more.

And while the above example may really open the eyes of newer iron condor traders to the real risks that is involved with this trade – it is IMPORTANT to understand that while the risk might be there – with the proper training, tools, and use of risk management techniques and adjustment methods – this risk doesn’t necessarily need to be such a frightening issue as it can be very much controlled.

Iron Condor – How To Adjust

The bottom line is that the iron condor options strategy is a great way to trade the market for consistent profits – however, like everything else, before running out and just getting started – make sure that you get good training and understand the real ‘key’ or ‘secret’ to making this strategy work – which is to have a full grasp and understanding on how to properly control the risk with this trade – and how to properly manage and adjust the position when things start to go wrong with your position.

To discover how to learn a very simple, easy to follow, step by step system for trading the iron condor strategy – as well as how to properly manage and adjust – join our FREE Iron Condor Options Trading Newsletter by CLICKING HERE


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Technorati Tags: Credit Spread, credit spreads, Iron Condor, iron condors, options trading, Vertical Spread

Iron Condor Killers


 

While looking to create the ‘perfect’ iron condor, we want to search for a ‘boring’ stock, index, or underlying to trade. This is a trading strategy that thrives in calm, range bound markets. We want an underlying that is sleepy, barely moving around, caught in a range.

Some things that can throw a wrench into our ideal and perfect iron condor position set up include….

1. Earnings Announcements
2. News on the underlying
3. A related government report

And even the dang fed holding a fed meeting with a decision being made on interest rates, QE’s, or the like.

This is one reason why a lot of iron condor traders prefer to trade this strategy using an index like the RUT or SPX or an ETF like SPY, IWM, or DIA. Since these trading vehicles represent a basket of many different stocks, for the most part they are immune to big swings and sudden movements as a result of a particular earnings report or news story on one or even several stocks.

The potential problem with trading iron condors on the more ‘boring’ stocks or indexes/ETFs is that the really boring and slow moving underlyings can have much smaller premiums to work with – which can decrease returns while increasing the risk.

But there are the ‘gems’ out there where we can find the ‘best of both worlds’ – and some of these underlyings are surprisingly consistent where it is possible to continually trade them over and over again – month after month – which can allow the iron condor trade to NOT have to spend time every month doing mind numbing ‘research’ looking for appropriate stocks that fit the proper criteria for an ideal iron condor set up.

To learn more about our ridiculously simple ‘paint by the numbers’ method for trading the iron condor strategy month in and month out – be sure to join our free iron condor option income trading newsletter by CLICKING HERE


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