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

For example with our last position – the trade went on as just the standard spread we put on every month. But, thanks to the big huge unrelenting run up in the RUT that we saw – we needed to apply adjustments on the up side of the trade.

At a certain point during this adjustment process – our condor 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 credit 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 super simple method for consistently making these 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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In this last months iron condor trading lab, we had the good fortune to be able to take a really nice big ‘double dip’ from the ‘option premium pool’ in a way that we’ve never been allow to before.

Whenever we place an iron condor trade or credit spread trade, 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 iron condor 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 in last months iron condor trading lab.

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 credit spread to replace the one we just closed out – and we found that the put credit spread that was just one set of strikes up – just 10 points in – gave us a credit that was exactly the same amount of the put credit spread 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 credit 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 credit 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 how we trade iron condors like this – including how to learn our super simple step-by-step ‘Iron Condor Recipe’ and Unique Adjustment Techniques for monthly income – be sure to join our FREE Iron Condor / Option Income Trading Newsletter by CLICKING HERE

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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 (click here to see how to determine where that is) – 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 iron condor trades while continually adjusting – something that usually can’t happen because when not adjusted properly the adjustments will simply eat up most if not all of the premium in the iron condors ‘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 income trading newsletter by clicking here.

To Learn More Join Our FREE Options Income Newsletter by CLICKING HERE

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

Sure, quick fast drops in the market can be scary for us iron condor traders – 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 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 iron condors adjustments – 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’ adjustment can do just that – and it’s a great method to use in those situations – one that can come be perfect with those relentless upwards moving markets.

Here’s the definition of this iron condor adjustment strategy:

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

With this iron condor adjustment, 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 will eventually ‘suffocate’ the risk in the trade and lock in profits – winding up either allowing us to transform our iron condors option trade into a new ‘can’t lose’ position – or at least creating 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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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 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 stand to 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 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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In this post we re-visit an iron condor trade / iron condor adjustments from 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

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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 the 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 RUT iron condor 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 we placed the one and only adjustment 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 ‘stupid 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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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.

Now of course don’t get me wrong – the iron condor IS an amazing trade – and is one that CAN win MOST of the time. But it’s not magic. It’s not ‘sure fire’ It’s not a ‘holy grail’…

Like every other strategy it does have it’s flaws – and if you don’t know what you are doing it’s possible to get banged up pretty darn good.

On the other hand – if you DO know what you are doing with the iron condor – and you fully understand how the trade works and how to correctly manage and adjust it – it CAN come pretty close (at least as close as you’ll be able to find).

So don’t fall for the idea of the perfect ‘can’t lose’ trade – and if you are out there searching for it, I recommend you stop wasting your time. It doesn’t exist.

However, there ARE trades – like our iron condor and our butterfly spread – that when combined with a good solid understanding of what’s going on beneath the hood – and our easy step by step formula to manage and adjust them – it can come pretty close – or at least let’s say – about as close as you are going to get.

For more info on how to learn more about our ‘consistent iron condor strategy’ and our ‘resilient butterfly spread’, join our FREE Options Income Trading Newsletter by Clicking Here

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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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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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However, for those of you who might grow bored of such a super simple system – or for those of you who wish to mix it up a bit, get more involved, perhaps with the goal of gaining a bit more of an ‘edge’ – there are several tweaks you can apply that when done properly actually CAN give you an edge with these trades – potentially helping you realize more profits faster.

One way to do this is by adding vega into the mix.

By taking a look at the implied volatility level of the underlying you are trading and comparing with the historical volatility, one can get an idea if the options are ‘expensive’ or ‘cheap’. Ideally we want to sell options (and our iron condors) when they are ‘expensive’ – and we want to buy them when they are ‘cheap’.

Since rising volatility levels can hurt iron condor trades from a vol standpoint – and sinking vol levels and help them (help them realize profit sooner) – in a best case scenario we would like to place our iron condor trades when the implied volatility levels of the underlying we are using are ‘higher’ than where they historically trade – with the thought being that these levels will revert – or ‘lower’ back to the norm – which in turn will benefit our iron condor position.

So rather than just blindly placing your iron condor trade at a preset ‘automated’ days to expiration time frame – an iron condor trader who wishes to be more involved with the trade – or who is looking to get that ‘slight edge’ – might want to consider monitoring the volatility levels on the underlying over a period of days before and after their normal ‘iron condor entry date’ – looking for the ideal place to enter the trade based on where the volatility levels are trading at.

This little iron condor tweak – when done correctly – can actually produce a nice ‘boost’ in profits to the trade trade – and in our own experience can MORE than make up for the cost of commissions in the trade. In other words, not only do we walk away with our normal monthly expected profit – but by implementing this additional ‘vega boost’ strategy – we can INCREASE our normal walk away monthly profit AND cover the cost of all commissions in the trade.

Using this iron condor ‘vega boost’ technique is actually really simple to do – and seeing exactly where the implied volatility levels of an underlying are trading at compared to where the historical volatility levels are trading at – and then using that info to determine WHEN and WHERE to enter the trade – this also is extremely easy.

For more info on how to learn to properly trade the iron condor as well as other option income trades, join our free option income trading newsletter by clicking here.

.

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Right around that time we read an email (I think it was an email – it might have been an iron condor article) that basically said that the iron condor trade was dead – that the market had changed and since the market was swinging around so wildly that iron condor traders should basically pack things up and put the strategy to bed.

Yeah right. Okay, whatever.

Ridiculous of course.

This trade isn’t dead – nor will it ever be – unless someone suddenly decides to take options and option trading away from the market place altogether.

And I don’t think that will be happening anytime soon.

However, at the same it was true that with increased volatility came an increased ‘challenge’ in managing the iron condor  trade. More monitoring of the positions were needed and potentially more adjustments – and for some of the months the big movements could threaten our short strikes in the trade – and many times when we put the trade on we did so realizing that not only was it possible for the underlying to reach or breach our short strikes we were setting – some months it seemed as though it could be a ‘given’ that they would.

Or at the very least, we felt VERY confident that where the underlying was trading at when the trade was first put on – would NOT be the spot it would be trading at a week or two later. And probably nowhere even close.

Which then lead us to think – ‘well then, if we can feel this confident that the underlying won’t be trading at this spot in a week or two from now – but then on the other hand we also don’t know – or don’t want to try and predict – which way it will have moved – what is the best trade we can do to take advantage of that’?

And while several trades came up in the discussion – one in particular arose that I hadn’t seen or heard of before – which was the ‘upside down super narrow iron condor / iron butterfly’.

This trade is unique and has some definite advantages – and after trading and testing this new spread position out – and exploring the different ways to tweak, manage and adjust them – I think this is a trade you WILL want to consider adding to your iron condor / option income trading ‘toolbox’ – especially for the more volatile months that will always come along.

For more info on how to learn more about this type of trading – join our free option income newsletter by CLICKING HERE.

Upside Down Iron Condor / Butterfly is a post from: Iron Condor - FREE Trading Videos

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Adjustments are an important and vital part of successfully trading iron condor, the butterfly spread, diagonals, credit spreads – or any option income strategy for that matter – and the way we approach most of these trades are to go into the trade with the understanding that adjustments will most likely be necessary. We just understand and embrace the fact that it is going to be part of the management process – and in the rare cases where they aren’t necessary - well, we just consider that a blessing and gift from the good option gods above.

Once you start to look at these trades (the iron condor, butterfly spread, diagonals, and even credit spreads) in this way – with the expectation that adjustments will be part of the game plan rather than a last ditch emergency technique to try and save a losing trade – it actually frees things up and allows you the opportunity to now view these trades in a whole new manner. It turns this game into sport where you now have much more control – where you are no longer at the mercy of the market. Trading options for income no longer have a heavy ‘probability’ factor tied into it. Instead, it now becomes a game where all you need to do to win – or more importantly – keep from losing money – is to know how to ‘keep the dang profit tent over the underlying’.

Some would way that makes it sound too simple – or ‘yeah right – easier said than done’.

But I can assure you, it really is that simple.

Or, I should say – it really CAN be that simple to those who are willing to take the time to ‘put in the time’, educate themselves, and learn how to ‘get it done’.

Learn the ins and outs to trading the iron condor, butterfly spreads, and credit spreads in this way – where you are in control – with the understanding and expectation that adjustments and management techniques WILL be necessary – and in fact when done correctly can create a trading environment where it’s possible for you to be even MORE profitable and profitable MORE quickly – and with way less risk.

To learn more about how to trade options like this join our free options income trading newsletter by CLICKING HERE

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However, for those who have been playing the iron condor trade for awhile – and who might actually getting ‘bored’ with entering and exiting using automatic rules – volatility levels can be a good way to notch things up a bit. Reading the vix – or the rvx – and using levels to help determine when to get into the whole iron condor trade – or step into it one leg at a time.

In our free newsletter we get into some lessons on some cool tricks and tools you can use to help get into these types of option trades at what could be considered ‘better’ or ‘more ideal’ entry points. If you haven’t joined our free newsletter yet – you can do so here.

Until then, here is the link to the video on ‘Using Volatility to help find ‘Option Bargains’.

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The latest iron condor option trading ‘training’ video just came out from Option Safari at the CBOE and in this most recent video Dan Sheridan goes over an iron butterfly trade set up in GLD.

An iron butterfly trade actually is an iron condor trade if you want to be technical about it. It is an option trade that is composed of a put credit spread and a call credit spread – on the same underlying – and it is usually placed ATM (or at the money) – meaning the shorts are placed – or sold – at the strike closest to where the underlying is currently trading at.

Of course the difference between this set up and the traditional iron condor is where those shorts are sold at. In the case of a more traditional iron  condor – the shorts of the credit spreads are placed some distance (usually a ‘good sized distance) away from where the underlying is trading at – so as to give the stock or index that is being used plenty of room to move around on the chart without moving through, or hopefully even getting close to where the short strikes have been sold at.

In the case of an iron butterfly on the other hand – the short strikes of both credit spreads are sold right ‘at the money’ – right where the underlying is currently trading at. There is absolutely no room whatsoever for the underlying to move without piercing one side or the other – however – it is set up this way on purpose.

The idea behind the iron butterfly trade is take advantage of the huge credit that is brought into the trade when the position is first put on – and combined with what is hopefully a tame and calm trading period in the underlying over the next so many days to a week or so of time – allow the increased theta of this setup to cough up profits more quickly.

Of course since the shorts are sold together at the same strike – and at the strike closest to where the underlying is trading at – any type of ‘good sized’ movement could cause the underlying to move outside the ‘tent area’ on the risk graph and put the position in danger much more quickly than with the traditional iron condor trade set up.

However – remember that we use that huge credit that was brought into the trade at the start of the trade to help fund adjustments and management techniques and potentially stay in the trade for a longer period of time because of this additional ‘premium cushion’.

Some prefer the iron butterfly trade to the iron condor trade – or at least to the traditional ‘high prob iron condor trades’ due to the fact that profits can be reached much quicker – the risk to reward is much lower – and the ability to use the extra premium cushion for additional adjustments – in fact numerous and ongoing adjustments that would most likely not be able to be made in a high prob condor because of the limited credit one is forced to work with.

If you haven’t already joined our members website newsletter here to learn more about all the ins and outs of the iron butterfly and the iron condor trade and how we have been trading them for super consistent profits throughout all different market conditions. To join our free options trading newsletter go here.

To see the CBOE training video on the iron condor / iron butterfly trade set up in GLD go here.

CLICK HERE TO JOIN US

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My plan for trading the iron condor when I first got started trading this strategy was to put them and keep them on all the way until expiration.

Then I would just let them expire worthless and have that premium remain in my account.

Back then I believed this was the best way to play the trade, because not only would I not have to pay my broker to take the trades off – I would also be able to keep the entire amount.

But that was a long time ago – and since then – things have changed.

After a lot of sleepless nights, too many close calls, a couple painful ulcers and one near hernia, I’ve changed the way I run my Iron Condor business.

I now place contingent orders to close each credit spread on either side of my iron condor as soon as the majority of profits are realized.

Here’s an example: Let’s say I sold an iron condor on the index XYZ for a total of one dollar – or around fifty cents each side.

When the put credit spread is worth only .10 – buy it back. And for the call credit spread the same thing goes.

Now perhaps some of you out there might be scratching your head wondering why I’d do something this. I know when I first started trading these – if someone told me this was their game plan, I’d be scratching my head. Seems like a futile and even sort of dumb thing to do.

But after trading these every month for years now – I don’t agree.

Yes of course it is true that by buying the trade back I am leaving money on the table. At least it seems that way.

But then again, not necessarily.

And also let’s look at exactly how much we are talking about here. The amount of money we’re talking about leaving on the table here is actually not that significant.

What’s more important (at least for me) – is that by closing my iron condor trade early, I have LOCKED IN FOREVER the majority of the gains on that side of the trade. And no matter what happens going forward – those gains that I’ve just banked CAN’T be taken away from me.

AND – my risk in the trade has been reduced.

I have also given myself the opportunity to generate ADDED gains from my overall position – without adding any extra risk.

Let me show you what I am talking about here:

I’ve found that many times during a trade, the premiums in options can drain quite rapidly. In fact, its possible for a spread to drain the majority of its premium in a matter of days.

Going back to our example – let’s pretend that I put an iron condor on about 40 days until expiration. For the trade I receive around a 1.00 credit. Fifty cents for each credit spread on either end of the position.

The day after I place the trade, our stock – XYZ – all of a sudden turns south – and proceeds to move down over the next 3 or 4 days.

Four days after I initiated the trade, I discover that I can now purchase the call credit spread of the position for just ten cents.

Now, if I don’t do anything and just let the trade continue to play – what I am actually doing is risking that upper side spread margin – for the next thirty six days until expiration – for just ten little dollars of additional potential profit. And that doesn’t really seem that worth it to me.

But – if I instead just spend the ten measly bucks to pull off that upper credit spread – I will LOCK IN the majority of the profit that was available in that spread – and earn a great return on investment in just four days.

And then, if our underlying suddenly turns around and shoots back up (which actually happens quite often) – I have no worries whatsoever since I no longer have any upside risk in the trade.

Even better, if our underlying continues to retrace back up – it’s possible that I could RESELL the exact same credit spread that was sold when the trade was first initiated – perhaps for around the same credit amount – or MORE – allowing me to actually get a BETTER return on investment than I was originally hoping for – WITHOUT increasing any risk in the trade.

But let’s just say we didn’t ‘re sell’ any options. Let’s just assume that we closed the trade entirely when our contingent orders were hit. In this case what we’ve done is eliminated risk (good thing) – freed up capital (good thing) – enlarged our return on investment over the number of days we have been in the trade (good thing) – and gotten completely out of the market a while lot sooner than if we had to sit around and wait until expiration day rolls around (and in my opinion this is a good thing too!).

Trading this way lets me take a ‘vacation’ away from the markets until it’s time to put on another trade. It allows me to peel myself away from my trading monitor and get out and enjoy all the other things in my life I’m interested in – without always thinking about how my iron condor is performing – or fretting about what I’ll do if there is a sudden stock market crash.

Getting this ‘trading break’ – this freedom to go out and do things without always feeling the need to check quotes on my phone – not having to worry about always being ‘on game’ and strategizing in my head about what adjustments I might have to make – just being able to sleep in mornings for as long as I please without stressing out about whether the market is going to make an opening gap…

That’s priceless.

Or – at the very least, it’s DEFINITELY worth the.20 or so it costs me to exit early out of the trade…for what is STILL a remarkable monthly profit.

Iron Condor – I Want My Life Back is a post from: Iron Condor - FREE Trading Videos

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Weekly Options Pinning

Yesterday we closed out one of our new weekly options income strategies that we have been implementing / testing over the last several months. There are a number of different factors that play into this trade working as well as it has been, including the use of weekly options (however in a different and unique way than we have seen used elsewhere), and the pinning effect that one can see occur on a number of different stocks on a fairly regular basis.

A Better Weekly Options Risk Reward

These trades can produce anywhere from 2.5% to %10 percent in one or two days. And by using a really simple to implement risk management strategy the losers, when they occur, can be held at close to a 1 to 1 risk to reward ratio. This allows for a great weekly options trade set up plan, for as long as we can set these trades up in such a way where we win the majority of the time (how we go about placing the trade at initial set up) and with the probabilities in our favor, these are proving to be a consistently profitable weekly trade.

Join our free option income trading newsletter to learn more about these weekly options trades as well a number of other option income generating strategies.

To join our free weekly options / options trading newsletter now, click here

Our ‘New’ Weekly Options Income Trade is a post from: Iron Condor - FREE Trading Videos

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From our Iron Condor Trading Lab – The place date for this trade was slightly earlier than normal – this sailed through beautifully with very little stress / adjustments necessary. To learn more about these trades join our free option newsletter.

IRON CONDOR – CLOSED FOR PROFIT is a post from: Iron Condor - FREE Trading Videos

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See risk graph of position right before closing it out below…

Our trade with profit target hit and right before closing it out.

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July RUT Iron Condor  With ‘Whipsaw Curbs’

We launched our July trade this last week and so far so good. We’ve put some curbs in place for any big moves that might occur short term and even though we’ve flattened this trade out considerably our theta is still really rich and expect to hit our profit goal in just a couple days – knock on wood…

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Today on the 20th – with another big down day – our ‘magic put’ kicked in once again pushing our current P&L line up nicely into profit where we did wind up closing. See risk graphs below…

Above: Our ‘Magic Put’ Adjustment kicks in as the market tanks again

Above: After one of our downside hedges have been removed as
we begin to unwind this position for a closed profit

TO LEARN MORE ABOUT THIS TYPE OF TRADING CLICK HERE

Iron Condor Course – Learn How To Adjust
>>> CLICK HERE <<<

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We’ve pretty much tied off our current butterfly position with the 2 adjustments shown in the graph below while the market continues to whip around here with fairly big moves. This current position with adjustments will hold up well regardless what the market throws at us over the next week or so – while at the same time still allowing us to make some profit between now and then.

Adjustment To Position During Whippy Volatile Action

Plan to include a video clip here shortly showing a bit of trouble we ran into while initially moving into this adjustment. Usually the bid / ask prices on the RUT are filled quickly and easily right at the mid point – however for some period of time there after the ‘flash crash’ it was unusually difficult to get fills on these types of adjustment spreads on the RUT – and we were forced to move to a plan B to adjust our iron condor / butterfly positions instead of being able to hedge the way we normally do.

Iron Condor Course – Learn How To Adjust
>>> CLICK HERE <<<

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One of the fastest and easiest ways to hedge / adjust the type of option income trades we do (like iron condors, butterflies) is to simply purchase a cheap extra long call or put in the direction that the market is heading.

While some traders discount this technique, the power it can have was proven with a live butterfly trade we had on during Thursdays meltdown.

About 2 hours before Thursdays big sell off started, we purchased an OTM put as a way to ‘adjust’ and ‘hedge’ our iron butterfly we had on. This was just a normal adjustment we make when our position hits certain criteria. Of course we had no idea was about to happen to the market a few hours later.

When you look at the graph below, realize that before the craziness started, while this position was still within – or ‘under’ the profit tent area, it was a losing position – underwater to the tune of about -$100.00 – or about -2.5%

When the market started crashing, that OTM put we had purchased earlier in the morning really kicked in.

In the screen shot below (taken at 11:40 PST) you can see how suddenly we are way outside our profit tent, however, thanks to that extra OTM put, our -$100.00 loss has now become a -$10.00 loss – basically break even….

Screen Shot Above Taken at 11:40 am

Then, in the screen grab below – which was taken at 12:09 PM PST (about 30 minutes later) – our trade is now at a profit of over +$1000.00 – or over +20% – thanks to the purchase of that extra OTM put…

Screen Shot Above Taken at 12:09 pm

Iron Condor Course – Learn How To Adjust
CLICK HERE

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*** OPTION INCOME TRADING COURSE – CLICK HERE ***

.

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The iron condor strategy is used by option traders ideally in non trending situations. The spread takes advantage of theta decay in options – as the day progress moving towards expiration day, all options are losing value – and in the case of the iron condor strategy – as long as the ‘sold’ strikes of the trade are placed well out of harms way (of the underlying reaching or ‘breaching’ them) these trades can usually expire worthless allowing the iron condor trader to keep the entire premium received.

Iron Condors are built from 2 individual credit spreads – one on either side – once again, placed as far out of harms reach (of the underlying touching or moving through them) as possible while still bringing in a respectable credit.

Placed above the stocks current price is a bear call credit spread – usually positioned at least one standard deviation away from the underlyings current value. Below the iron condor investor places a bull put spread credit spread – also usually at least one standard deviation away from the stocks current trading price.

During the duration of the trade, the underlying can fluctuate around just as long as it doesn’t do so too wildly – and just as long as it remains within the predetermined ‘range’ created by the sold credit spreads on either side.

This type of option spread can carry with it an extremely high probability of winning as in most months the underlying, if chosen correctly, should not too far away from it’s current position. In the months where the underlying DOES begin to move too far, too fast – the trader managing these positions should have an adjustment plan in place to contain and cut short losses – which can be significant with these types of trades due to the high probability of winning / poor risk to reward set ups. However, if one does understand the proper way to manage and adjust the iron condor trade during it’s few seldom months per year – this type of trading can be extremely rewarding.

Iron Condor Course – Learn How To Adjust
CLICK HERE

photo credit: law_keven

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There are a number of different ways to trade the iron condor options strategy.

It seems as though many option traders prefer the wider and higher probability condor. This options spread usually has wings on either side, spread wide apart on the risk graph screen. The wider the two credit spreads are placed apart from each other – the higher the probability that either one won’t be touched or penetrated by expiration day – however the downside is that the wider these two vertical spreads are placed apart, the less credit that will be brought in – which in turn increases the risk on trade.

Lower probability iron condors of course have the two credit spreads closer to one another. These trades bring in more premium, however the probability of not touching is lowered the closer the two credit spreads come towards each other. These lower probability iron condors can bring in higher returns, however because the two verticals are both closer to the current at the money position, they will most likely require more adjustments and management. But to help offset that fact, remember, there is more premium brought in at the beginning of the trade which can assist in funding adjustments.

Finally, the iron butterfly, which is technically an iron condor (a put credit spread and a call credit spread). The shorts on this trade are both sold at the same strike – usually At The Money (where the underlying is currently trading at on the price chart). This is the lowest probability iron condor and will require the most management – but again, like the intermediate condor described above, this is offset due to the fact the a larger amount of premium is initially brought in which can help a lot in the funding of adjustments.

Iron Condor Video Course – CLICK HERE

photo credit: Kent Wang

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The iron condor option strategy is an option spread that allows the option trader placing the trade to realize a good return on investment in a relatively short amount of time by ‘betting’ on where the stock or index being used WON’T go within a specified period of time.

Instead of trying to guess which way a stock is headed, which is how ninety plus percent of investors trade – with this trading strategy, the iron condor seller instead attempts to make an ‘educated guess’ where the stock won’t go – or a general area to which the stock will be confined over the next so many days to expiration.

A tool that the iron condor trader has to help in determining this is the standard deviation calculation. The standard deviation is a mathematical calculation that specifies how far up or down an underlying SHOULD move within a period of time based on past / current performance of the underlying.

While of course the ‘safe’ range that is given by the standard deviation calculation is certainly not guaranteed to be one hundred percent accurate in all situations – it does provide a very good starting point for iron condor traders in helping to determine at which strikes and how many days from expiration to place their trades.

photo credit: quinn.anya

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Upon first learning about iron condors, many new option traders will just put them on without having a full plan in place for how to manage the trade if it goes against them – or how and when to close the trade once it is profitable – or if they will even close it at all.

I was guilty of this myself when I first discovered this option selling strategy. I was so stunned and excited at the concept – that I didn’t do what more likely would have been the more responsible thing to do – which is step back, take some time, start studying and learning more about all the ins and outs of the strategy and then start paper trading it.

Instead, I was so ‘sold’ on the pitch given to me by this strategy that I simply just logged into my broker account and slapped one on. And I think this is the exact same thing that happens to a lot of ‘rookie’ iron condor traders when they first learn of this trade.

Unfortunately what inevitably happens is that eventually at some time the stock or underlying being used will go a little wild and the position will start to get into some trouble and losing some serious money and then it is at THAT point that the new iron condor trader will try and get serious about properly educating themselves on how to manage and adjust these trades. The problem is that at this point it is usually too late.

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There are two faces to the iron condor spread.

The first face is the one most new traders are introduced to. When the iron condor and the rookie option trader first meet – usually the picture that is painted of the iron condor is one of magnificence – grandeur – a wonderful, little known, very difficult to lose from investment secret that has been hidden from the general public by market makers who didn’t want to let the cat out of the bag. A trade that requires just a few minutes per month to manage – that can kick off incredible returns of over ten percent per month, and on and on and on.

Well, of course the rookie option trader instantly falls head over heels in love with the iron condor – and why shouldn’t they? it’s almost too good to be true!

The problem – is that it is too good to be true.

Sort of.

See, the iron condor IS a magnificent trade – and it DOES take very little time to manage – and it CAN kick off outstanding returns.

The problem, is that what the rookie option trader WASN’T told upon first meeting the iron condor – is that the iron condor spread has a nasty side that shows it’s face every so often. And it’s nasty enough to completely destroy everything good that the ‘good side’ of the iron condor can provide.

Iron condors have a high probability of success – however that high probability of success comes at a steep price – which is an absolutely horrendous risk to reward ratio. And if not properly managed the returns that the iron condor can produce can be completely obliterated by just one bad month if the trade is not managed properly.

The key to winning with this strategy is to understand that the the iron condor does have a dark side – but as long as a trader has the proper knowledge to manage those tantrums and fits that are occasionally thrown by the iron condor – this trade really can turn out to be all that it’s cracked up to be.

photo credit: Steve Snodgrass

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The iron condor spread is actually constructed from other option trading spreads.

For instance, the iron condor is built from two seperate credit spreads – both a bull put spread – which is a credit spread constructed from puts with the traders view that the stock or underlying is nuetral to bullish – either staying in the same general area on the chart or heading up.

The other end of the iron condor spread is built from a bear call spread – which is a credit spread (also known as a vertical spread) constructed from calls with the trading viewpoint that the stock or underlying be utilized is nuetral to bearish – either staying in the same local on the price chart or is thought to be headed downwards.

Overall, the iron condor credit spread is a trade put on when the trader placing it is somewhat confident that the underlying being used will be staying in somewhat of a range and not expected to be so volatile as to penetrate either short strike of either the bear call spread on the upside or the bull put spread on the down side.

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When many retail traders first start dabbling in options trading before long they come across the iron condor spread – either from an online ad, a live seminar, an option trading friend or neighbor – or an online advisory service touting it as the greatest thing since sliced bread.

And don’t get me wrong – the iron condor IS a great trade – and all those stories and claims of making 5 to 10 percent monthly returns without having to even look at market – and how the odds are so much in their favor – and how it is just like becoming the ‘house’ instead of the gambler – yes – all that is true too – but there is something that is being left out of these various conversations and claims which potentially causes the new option trader to misunderstand this strategy from the beginning and to start trading it with the wrong expectations.

While it is true that the iron condor and the credit spread strategies offer high probabilities of winning – in some cases as high as 80 and 90 percent – what usually isn’t talked about is the risk to reward ratio of these trades – which can be as high as 10 to 1.  Many times in order to achieve the 80 to 90 percent probability trade that they are always talking about – that trade will have a 10 to risk risk to reward ratio – meaning that the trader is risking 10 dollars to make just 1. This is not a very good risk to reward ratio. In fact it is awful.

When you do the math, you will find that even with the wonderful 80 to 90 probability of winning trade – it would only take 1 loss to completely wipe out the 8 to 9 wins you are expecting to make through the year – and perhaps even MORE.

Which is why it is so important to fully understand these option spread strategies and when and how to properly manage them when things go wrong – which they certainly will – believe you me. However, once you DO know how to properly manage the ‘problem’ months that will come along – this trade really can be the great trade that they all talk about. But if you are just getting into this game – be aware.

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Credit spreads are a way for option sellers to sell premium without the risk of doing so naked – or uncovered. Because the credit spread is comprised of 2 options – the sold option and the purchased option to ‘cover’ the short position – option sellers are able to generate good premiums with limited risk.

A credit spread option example could appear as is following…

Sell 4 AAPL 200 Puts
Buy 4 AAPL 195 Puts

If an option trader were to sell a similar ‘naked’ position as the one above, the risk would be huge as the trader would be liable to purchase the stock at 200 even in the event that the stock crashed to 0 overnight. Although some might argue that this would never happen – gigantic gaps can and have happened – and many a naked cal and put seller have been burned. In fact similar situations have been known to out traders completely out of business.

Back to our example, if a trader were to put on a similar position – only doing it without the purchased 195 put for ‘coverage’ – in the event of a dramatic down move the trader would be liable for purchasing the stock at 200 per share regardless of where the stock wound up free falling to.

However, with the 195 put purchased for ‘coverage’ – the most the trader can lose in a sell off situation is the difference between the two strikes of the spread (5.00) minus the credit that was originally brought in.

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As option trading has become more and more accessible to the ‘retail trader’ so has the resources and education necessary to make what some might call more complex option spread strategies achievable. Option spread strategies like the iron condor spread, the calendar, the credit spread, the butterfly spread, and so on were quite likely little heard of just a few years ago.

However now, it is extremely easy to find information regarding these option strategies as well as many others. Late night television features programming and the investment and / or finance section of your local bookstore is full of these publications.

Perhaps one of the draws of this type of investing for the retail crowd is the leverage which option spread trading allows – as well as the number of available option strategies that can be put on and benefit with very little time involved watching the market and without having to pick market direction.

In particular, the iron condor option spread – along with the credit spread (which is what the iron condor is constructed from) is one which is quite easy for the novice option trader to understand. I think it could be safe to say that the option strategy progression many if not most new option traders make goes as follows:

Start off by trading either Covered calls or perhaps straight calls and puts, then they progress on to debit spreads, then credit spreads. Right in here a few of the more adventuresome might take a detour and try naked put and / or call selling – until they get burned and retreat back to credit spreads. Then iron condors before moving on to the butterfly spread, double diagonal, and more.

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In this weeks issue…

*  VIDEO: The STRADDLE Strategy
*  VIDEO:  5 YEAR RETIREMENT PLAN
*  Which Way Is This Market Headed?
*  VIDEO: The Reverse Butterfly
*  VIDEO: Market Recap & Trading Strategies
*  VIDEO: Dolphins…

Here’s this weeks report…

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*** WHICH WAY IS THIS MARKET HEADED? ***

Adam takes a current look at the Dow and Gold…

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*** VIDEO: THE STRADDLE STRATEGY ***

Options Training Video detailing the Straddle Strategy…

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*** VIDEO: FIVE YEAR RETIREMENT PLAN ***

See How Wall Street Insiders ‘Snowball’
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*** VIDEO: REVERSE BUTTERFLY ***

Options Training Video detailing the Reverse Butterfly…

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*** VIDEO: WEEKLY WRAP UP & STRATEGIES ***

Options Video recapping the week in the market and
more option strategies…

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*** VIDEO: TOTALLY TRADING UNRELATED ***

Dolphins…

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The condor spread is one of the lesser known and/or used option spread strategies.

While the name is similar to the more popular ‘iron condor’ strategy – the ‘condor spread’ is different – even while the risk graph of the trade looks the same.

The difference between the condor and the iron condor is that the condor spread is constructed of all calls or puts – while the ‘iron condor’ is comprised of BOTH call options and put options.

An iron condor example on IBM looks as following:

Buy 2 110 IBM Puts
Sell 2 115 IBM Puts
Sell 2 125 IBM Calls
Buy 2 130 IBM Calls

The iron condor example above utilizes both calls and puts – and it is constructed of 2 separate credit spreads.

A condor example on the same underlying would look as follows -

Buy 2 110 IBM Puts
Sell 2 115 IBM Puts
Sell 2 125 IBM Puts
Buy 2 130 IBM Puts

The condor example above uses ONLY puts – and is composed of a put debit spread as well as a put credit spread.

While constructed differently however – if you were to compare these two option spread strategies next to each other on a risk graph or payoff diagram – they would look extremely similar if not identical.

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Several different option spread trading strategies which investors can use for creating monthly income include the iron condor, credit spread (or vertical spread) – the butterfly spread – and others.

Option spread trading refers to the act of selling one option and buying one option. In the case of the iron condor strategy – these options would usually be in the same month. Credit spread option strategy would include the same month options as well – and the options would either be all calls or all puts. Diagonals would be comprised of the same underlying – however the months could be different months – and the same is true with calendar spreads.

Non directional trading investors find option spread  trading enticing because it is a way for them to use leverage to benefit from the theta decay of options while limiting their risk. These trades allow the option trader to sell premium and collect that theta – while purchasing cheap ‘insurance’ to cover themselves in a worse case scenario.

Option spread trading has become fairly popular recently and more and more retail traders are getting their feet wet in this type of investing – whereas not too long ago these type of option spread strategies were little known and traded only by professionals.

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At the core of the iron condor strategy is the vertical spread.

If we were to reverse engineer the iron condor strategy – take it apart – split it in half – and look at what the spread is actually constructed from – we would find that it is simply 2 credit spreads. A vertical spread on either side.

Usually the iron condor trader will construct their trade anywhere from 1 to 3 months away from expiration day. For example – if an iron condor trader were setting up a March trade – the trade might be initiated as early as Jan of that year. I think most iron condor traders would agree that this might be as far away from expiration one might want to place this type of trade – and it seems as though most prefer to place them much closer to expiration day – usually somewhere in the 30 to 40 day range.

To place an iron condor trade – the investor would either sell 2 separate vertical spread – or credit spread – an equal distance away – or out of the money – from where the ETF they are trading with is presently trading at.

For example – if the investor were placing an iron condor on the SPY – they would sell a call vertical spread above where the SPY is trading at – and they would sell a put vertical spread below where the SPY is trading at.

These two individual credit spreads can be sold either one at a time – which some refer to as ‘legging in’ – or some brokers allow them to all be placed together as a full iron condor ‘package’.

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Option selling has become more main stream recently as more and more retail traders learn about the various option spread trading strategies which can provide actually quite impressive returns over short periods of time.

Option selling is the act of an investor ‘selling’ an option – either call or put – to bring a credit into their account. The trader doesn’t necessarily have to own the option prior to selling it – or even own a related base asset such as the stock that the option is derived from (such as is the case with covered call selling)

Even though the investor may not need to own the option first – or a related asset – in most cases the investor DOES need to have enough cash in their account to ‘cover’ the sold option if it were assigned – or they could also cover it by purchasing another nearby option – such as would be done in the case of a credit spread option position – or a debit spread.

Some popular option selling strategies include:

Iron Condor
Credit Spread
Butterfly Spread

Option selling is a great way for investors to benefit from the fact that options are a decaying asset.

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An option selling strategy that has gained a lot of popularity in recent years is the iron condor.

This option spread trading method is comprised of two vertical spreads – or credit spreads – on the same underlying stock / ETF / index. It is made up of an out of the money bear call spread – a credit spread option trade that benefits when the underlying asset remains below the sold short strikes – and a bull put spread on the opposite side of the position.

While there are numerous ways to trade the iron condor option spread trading technique – one popular way is to sell the shorts on either side as far away as possible with the hope being that while the trade is in progress the stock / index vehicle being used won’t reach those levels – which the probabilities say they shouldn’t.

Although it is true that this trade is a high probability trade and when placed correctly the trading asset being used should not breach either sold strike of the trade – of course this is always a possibility – and the risk on these trades can be significant.

Regardless of the favorable probabilities traders of the iron condor option trading strategy should always have a risk management plan in place before putting on these trades.

photo credit: James Byrum

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Here is an illustration of a condor spread -

Go long 4 50 Calls
Go short 4 55 Calls
Go short 4 60 Calls
Go long 4 65 Calls

The risk profile of this looks similar to that of the iron condor.

Also – if once one takes a good look at the trade, it also could be argued that this trade is a split strike butterfly trade – or a traditional butterfly trade where the shorts being sold are separated.

Finally – the condor trade – like the one illustrated above – is also a common adjustment technique used by iron condor traders to ‘roll’ the side that is in trouble further away from a threatening move.

For example, in the illustration above, of an iron condor trader had a trade on where the call side was made up of a sold 50 / 55 call credit spread – and it was being threatened – a way that trader could adjust the trade would be to roll the threatened credit spread further up away from the underlying.

To do this in one simple trade would be to place the trade described above – which would wind up moving the 50 / 55 call credit spread up to a 60 / 65 call credit spread.

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If one were to take the iron butterfly spread apart – reverse engineer it if you will – then take a look at the components – they could come to the determination that the butterfly spread trade is basically a straddle spread – with cheaper wings purchased for protection.

At the core of the trade – it’s just the sale of a straddle. It’s what the iron butterfly spread trade really wants to be.

Following is an example of an iron butterfly trade:

Purchase 1 36 Put
Sell 1 38 Put
Sell 1 38 Call
Purchase 1 40 Call

If you remove the 2 purchased options – the 36 put and the 40 call what is left?

The short 39 put and the short 38 call. A sold straddle.

This straddle is what makes this trade money. The purpose of the 2 purchased wings is to provide protection and margin relief.

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A variety of individual butterfly strategies are in the option income traders ‘toolbox’ for use – including the ‘regular’ butterfly consisting of either calls or puts, the iron butterfly position, and the broken wing butterfly – or ‘skewed’ butterfly.

The ‘regular’ or traditional butterfly is made up of either all calls or put options. These are usually constructed with the short strikes being sold at or near where the stock or underlying investment vehicle is currently trading at. The wings of this version of the butterfly spread are bought out an equidistant length away from where the shorts were sold.

An Iron Butterfly could actually be viewed as an iron condor – it is made up just like an iron condor trade -  the difference being that the shorts are sold at the same strike price as each other – as if attached together. One could think of this trade as an iron condor just ‘pushed’ together in the middle.

The broken wing butterfly can be made up of puts, calls – or both calls and puts. What makes this trade different is that both wings are not spaced apart equally on either side. One wing is shorter than the opposite side – making this trade ‘skewed’.

Usually traders consider the butterfly spread trade to be a non directional trade – however these trades can also be constructed to be played directionally.

photo credit: Diganta Talukdar

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Butterfly Spread Trade – March 2010 – RUT

This last week we closed out our RUT Iron Butterfly Trade for a profit of just over 10%.  Total days in trade: 8 days.

Learn more on these butterfly spread trades.

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*  Which Way Is This Market Headed?
*  VIDEO: The Protective Put Strategy
*  VIDEO: RUT Bearish Vertical Spread
*  VIDEO: Wall St. Wrap Up & Trader Tax Chat
*  VIDEO: Love Story…

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5. Iron Condor – *** Weekend Trading Report *** IRON CONDOR – *** Weekend Trading Report *** (Note: To...

Right before closing out butterfly trade position (above)

We love trading these butterfly spread trades – iron condors on the SPY as they are so liquid and easy to get in and out of.

JULY SPY BUTTERFLY – IRON CONDORS CLOSED is a post from: Iron Condor - FREE Trading Videos

Technorati Tags: Butterfly Spread, Credit Spread, Iron Condor, Option Strategy, Vertical Spread

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Here they are:  Trading Plan

Look at any professional trader out there and they will have a detailed plan of how and when they will enter and exit a trade and have precise metrics why.

But for some reason, most retail traders (foolishly) skip the planning portion entirely.

Want to see exactly how the ‘Pros’ use a proprietary trade plan to crush the options market?

In case you haven’t heard about them yet, these guys are all Ex-Navy F/A-18 Fighter Pilots who’ve logged hundreds of REAL combat missions across the world from Bosnia, to Iraq to Afghanistan.

But they’ve also served on the frontlines of capitalism as well and have transferred their success to trading – so, I think it’s safe to say that we can all learn a thing or two from them about “proper planning”.

And over the last 15 years or so, they discovered how to leverage their skills from the military to help them KILL IT on Wall Street, too…

Top Gun Options – Here’s Your Trading Plan – VIDEO is a post from: Iron Condor - FREE Trading Videos

Technorati Tags: buy top gun options, mathew whiz buckley, Matt "Whiz" Buckley, Matt Buckley, matthew buckley, options university, Top Gun Option, Top Gun Options, top gun options bonus, top gun options review, top gun options scam

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While the ‘basics’ of option trading is covered here to help those new to options get a good grasp on the concepts of option trading, there is also significant focus placed on intermediate to more advanced option trading techniques and methods. Overall, there is a ton of rally good solid content for everyone in this course – from the newbie to the seasoned pro.

Matt Buckley is a former Navy Aviator who flew the FA18 Hornet for 15 years and graduated from the Navy fighter weapon school also known as TOP GUN. In addition, he also flew 44 combat missions over Iraq.After leaving the cockpit he went into the trading pit as the managing director of leading wall street options firm.

The purpose of the Top Gun Options Course is to help show retail traders how to reach their financial goals by following a unique training strategy put together by Matt and his team that is derived from ‘combat tested methodology’.

Matt says:

“You dont just hop into a 35 million asset like the F18 and figure out where you want to go and how you are going to get there once you are airborne. That’s a recipe for disaster.

All of the planning is done on the ground, PRIOR to launch.

No one really likes to talk about this, but trading options is no different. When you fly for the Navy, every mission had an objective – and you always have a bullet proof plan in place to virtually guarantee you achieve your objective. The goal is to execute the mission with the highest degree of precision possible and that requries an intense amount of discipline.

Equally – in options trading, you need to know WHY you are getting into a trade, WHEN to STAY IN the trade, and WHEN to GET OUT of the trade.

And with the help of Top Gun Options ‘Trade Planning’ – you will learn exactly how to use our combat tested methods to make potentially huge financial returns on wall street while continuously minimizing risk”.

Top Gun Options – **FREE VIDEO** – Trading Plan is a post from: Iron Condor - FREE Trading Videos

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Who is Matt Buckley?

Matthew Buckley is an ex Navy Fighter Pilot who flew the FA 18 Hornet for over 15 years and also graduated from Top Gun. In addition he had over 400 carrier landings and 44 combat missions over Iraq.

After leaving the ‘Front Lines’ with the military, he went to the Front Offices of one the largest option firms on Wall St. where he was the managing director of strategy.

What Matt Buckley and his team of option traders is bringing to the table is a new very easy to understand training course and teaching system where they apply the discipline and the risk management methodologies that they learned and used successfully in military combat. They take these same tactics, systems and methods and apply them to teaching and trading options through this brand new Top Gun Options course.

Top Gun Options – *FREE* Options Trading Video Course is a post from: Iron Condor - FREE Trading Videos

Technorati Tags: mathew buckley, mathew whiz buckley, Matt "Whiz" Buckley, Matt Buckley, options university, Top Gun Option, Top Gun Options, Top Gun Options Course, top gun options review

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5. Top Gun Options – Here’s Your Trading Plan – VIDEO What are the TWO WORDS that separate professional-level options traders...

I had a chance to look through some of them last night and was pretty blown away at how simply these guys teach both the basic AND more advanced concepts of options trading.

AND – we’re not just talking about basic calls and puts here either. While the basics ARE covered in these videos, so are more advanced concepts. If you are familiar with these guys, you know that they are the ones who regularly trade the Broken Wing Butterfly along with other more complex strategies.

Anyway, the BEST part of this deal is that there is no cost in getting access to these videos. They’re F.R.E.E.

Right now they are GIVING THEM AWAY.

This is a limited offer so jump on this quickly before they’re gone. It really is a great resource.

Matthew “Whiz” Buckley’s Top Gun Options Course is a post from: Iron Condor - FREE Trading Videos

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6-26-09

This month we took our iron condors off a little earlier than we normally would allowing us almost 3 full weeks of ‘vacation’ – not having to worry or watch the market in regards to this trade whatsoever. These last few months have been beautiful for these trades.

Also see some of this months other trades at our butterfly spread trade blog

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IRON CONDORS – RUT JULY IRON CONDOR – CLOSED is a post from: Iron Condor - FREE Trading Videos

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SPY BUTTERFLY – JUNE 09 – CLOSED

6-15-09

6-15-09

This months Spy Butterfly turned out nicely. On closure of main position left some extra OTM long calls on since they were worth less than what it would have cost in commisions to close them – AND – if the market blasted off for some reason before expiration day they could become a nice little lottery ticket.

To learn more JOIN OUR FREE IRON CONDORS NEWSLETTER. Click Here

Find more on this and other trades at butterfly spread blog / site.

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*** SPY JUN BUTTERFLY – IRON CONDORS CLOSED *** is a post from: Iron Condor - FREE Trading Videos

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Options University is putting on a promotion over the next couple weeks where they are giving this course away for free.

Click the following link to secure your free copy of this course: Options Mastery Course by Options University

Get this $2000.00 Options Mastery Course FREE is a post from: Iron Condor - FREE Trading Videos

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5-27-09

5-24-09

This months Iron Condor trade was pretty much text book perfect. Put it on, place our exit orders, take it off. Almost seems like there’s something ‘wrong’ here with the market behaving so nicely…

To learn more about trading iron condors join our free email mini course / newsletter by Clicking Here

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*  PRACTICAL APPLICATION: Options Class
*  VIDEO: Long Call Butterfly
*  VIDEO: SPY Straddle
*  VIDEO: Wall Street Up
*  VIDEO: Drifting

***************************************

*** PRACTICAL APPLICATION: OPTIONS CLASS ***

Tired of learning a bunch of Options *Theory* but having
NO IDEA how to actually use it to make money?

New ‘Practical Applications’ Options Trading Class allows
you to log in real time on your computer, watch and ‘do’
along with professional options traders as they teach you
firsthand how to use option strategies to generate income.

Sign up for our free iron condor option newsletter and learn more

To subscribe to our Free Iron Condor newsletter, go here

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*** IRON CONDOR – PRACTICAL APPLICATION CLASS *** is a post from: Iron Condor - FREE Trading Videos

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The market over the last several weeks have been beautiful for iron condor traders as well as other option ‘theta’ range bound trading.

Adjusting Iron Condor Positions. is a post from: Iron Condor - FREE Trading Videos

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‘Scalping Theta’ uses the underlying STOCK to manage the option position in a unique way rather than just using options. (This adjustment strategy is taught in this video course – click here)

This adjustment technique can be used with managing iron condor trades and calendar spread trades as well.

Following find a screen grab of the risk graph right before this ‘Theta Scalped’ trade was closed out…

Go Here to get the Free Iron Condor Weekly Email Report.

Also, take a look at butterfly spread

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Iron Condor / Butterfly Spread Trade closed for May 09 is a post from: Iron Condor - FREE Trading Videos

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*** THE FORGOTTEN OPTION TRADING STRATEGY ***

Recently I found a great resource guide online that explains and breaks down a little known option trading strategy in really easy to follow step by step detail.

I had known about and even used this strategy over the years – but over the last couple of years I had put it on the back shelf – but after reading this guidebook I’ve found a renewed interest in this trade and will be starting to trade some of these.

To learn more join our free iron condors option trading newsletter Click Here

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*** THE FORGOTTEN OPTION TRADING STRATEGY *** is a post from: Iron Condor - FREE Trading Videos

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*** NEW OPTIONS TRADING VIDEO PROGRAM ***

Great new weekly options video program produced by floor traders called Strategy of the Week. Every week a market maker explains, discusses, and trains a new option trading strategy, such as calendar spread, butterfly spread, iron condor, covered call, and more. This is a great and informative new show and like all the others – it’s FREE.

For more info on where to find this sign up for our free newsletter… Click Here

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*** A NEW OPTION STRATEGY for VOLATILE MARKETS ***

A few newsletters back we showed the ‘V-Spread’ – a new Iron Condor related option trade perfect for volatile markets. If you missed it you can read more by joining our newsletter by Clicking Here

This last month we put on another ‘DIFFERENT’ sample strategy trade that can work great in these wild swinging markets.

To learn more join our iron condor email newsletter by Clicking Here

How To Trade, Manage, and ADJUST Iron Condors – TRAINING COURSE is a post from: Iron Condor - FREE Trading Videos

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New Iron Condor Training, Tools, Webinars, and more – Click Here

Feb. was a good month for our Iron Condor
trade.

Although our new March trades aren’t in any
trouble yet – the market is currently in sort of
a precarious position – causing us to be extra
cautious.

Join our free iron condor newsletter by going here

*** Feb Iron Condor Expiration *** is a post from: Iron Condor - FREE Trading Videos

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*** IRON CONDOR / OPTIONS WEBINAR REPLAY ***

There was a great options trading webinar this
last week and if you missed it you can catch a
f.r.e.e replay of it.

For more info join our free newsletter by Clicking Here

*** IRON CONDOR OPTIONS TRADING WEBINAR REPLAY *** is a post from: Iron Condor - FREE Trading Videos

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*** Is There Actually Such A Thing As A Win-Win Trade? ***

*** HEARD OF THE ’3 LEGGED BOX’ TRADE? ***

VIDEO: Here is a really interesting options trading video on an option strategy called the 3 leg box.

To learn more join our free iron condor options trading newsletter by Clicking Here - and receive free Iron Condor Training, Tools, access to Webinars, and more. To get the Free Iron Condor Weekly Email Report – Click Here

*** THE HOLY GRAIL OF OPTIONS TRADING? *** is a post from: Iron Condor - FREE Trading Videos

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Good new article resource on various ways to win on option positions
even when your wrong..

Click Here to join our online options trading newsletter and learn more.

- ALSO -

*** MODERN DAY NOAH? ***

Here’s a great video someone sent me this past
week on Peter Schiff.

This footage was shot several years ago – and
watching some of the so- called ‘gurus’ rolling
their eyes and laughing at Peters predictions is
surreal…

Click Here to join our Iron Condor newsletter and
learn more.

** GOOD IRON CONDOR / OPTION ‘ADJUSTMENT’ ARTICLE ** is a post from: Iron Condor - FREE Trading Videos

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Iron Condor Video Training Course, Tools, Webinars, and more – Click Here

Go Here to get the Free Iron Condor Weekly Email Report.

*** MORE IRON CONDOR / BUTTERFLY TRADES COOKING ***

After closing out last weeks Iron Condor Butterfly trades, we put on some new ones this week…

If you’re interested in learning more about how we trade these things be sure to join the list for our new upcoming butterfly trading newsletter by clicking here

CRASH PROTECTION For IRON CONDOR TRADES

Oct 08 was the closest thing many newer Iron Condor traders have experienced first hand to a crash – and the graphic in this weeks newsletter shows a ‘Crash Protected’ Iron Condor and how it performed during that crash.

This trade is a version of the Iron Condor which is used during periods of high volatility. Had this Iron Condor trade been put on in the traditional manner – it most likely would have gotten creamed as the crash occurred…

To learn more please join our free iron condor newsletter by Clicking Here

*** MORE IRON CONDOR / BUTTERFLY TRADES SOARING *** is a post from: Iron Condor - FREE Trading Videos

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New Iron Condor Course, Video Training, Tools, and more – Click Here

*** IRON CONDORS – Geoffs Christmas Trading Video ***

This year instead of sending out a cheesy Merry Christmas email
Geoff prepared an early Iron Condor Christmas gift / video.

It’s a FREE video that will teach you what he does and how he profits
around earnings.

Click Here to join our newsletter and learn more.

This isnt specifically about trading Iron Condors or Credit Spreads – at
earnings time there are too many unpredictable forces operating.

However, he does have a strategy that he employs on stocks that have
a tendency to gap or move big during those times.

This new Iron Condor ‘related’ strategy can add enormous benefit to YOU and your
trading account for 2009.

Click Here to join our email newsletter and learn more.

*** IRON CONDOR – Geoffs Christmas Trading Video *** is a post from: Iron Condor - FREE Trading Videos

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*** NEW COVERED WRITE STRATEGY ***

Good new video link on how to do
a covered write trade…

Click Here to to join our newsletter and learn more…

*********************************************

*** NEW *LIVE* TRADING VIDEOS ***

Bill just added these short live trading videos showing
how he makes between $60 to $150 daily in 10 minutes
during his ‘lunch hour’ – using a very simple strategy
with very little risk.

Join our newsletter and check these out…Click Here

*** NEW IRON CONDOR – COVERED WRITE STRATEGY *** is a post from: Iron Condor - FREE Trading Videos

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This month we decided to dip our Iron Condor toe back in
the water with our Monthly Butterfly Trades (similar to Iron
Condor Trades – except maybe better!)

- ALSO -

Dont miss Bills daily live trading videos, or the
featured Covered Write Video – and the Iron Condor Xmas
Video link found by clicking the link below…

To subscribe to our Iron Condor newsletter for Free, go here

** Dipping Our Iron Condor Toe Back In The Water ** is a post from: Iron Condor - FREE Trading Videos

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*** IRON CONDOR SUPERTRADER INTERVIEW ***

Excellent new article / interview from a
successful 62 year old retail Iron Condor
trader – and how he trades, manages, adjusts…

For more info on this article Click Here

Iron Condor Course, Video Training, Tools, and more – Go Here

*** IRON CONDOR SUPERTRADER INTERVIEW *** is a post from: Iron Condor - FREE Trading Videos

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*** NEW IRON CONDOR VIDEO COURSE ***

Here is a new ‘option income course’ that is absolutely
worth the investment.

For more info Click Here

Includes training on new and unique ways to trade Iron
Condors, Calendars, as well as some more advanced
*Power Strategies* that are perfect for trading in these
turbulent stock market times.

For more info and to subscribe to our Iron Condor newsletter
for FREE – Click Here

*** NEW IRON CONDOR VIDEO COURSE *** is a post from: Iron Condor - FREE Trading Videos

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*** IRON CONDOR: GREAT NEW FREE TRADING VIDEOS! ***

There are some GREAT *NEW* FREE Trading Videos
up on the website for us to watch (absolutely no cost).

In particular, watch the one titled ‘Market
Wizard Insights’ by Jack Schwager. Also, ‘The
Art Of Morphing / Adjusting’ By Ron I.

These are really great – recommended.

To find out more and to  join our free newsletter Go Here

*** FREE TRADING VIDEOS *** is a post from: Iron Condor - FREE Trading Videos

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*** GREAT NEW OPTIONS TRADING VIDEO COURSE ***

Good new Options Trading Online Video Course – Go Here

In particular be sure to check out Video Module called:
‘Advanced Techniques and Strategies’. This stuff is
perfect for trading in our current market environment.

To subscribe to our Iron Condor newsletter for Free, go here

*** GREAT NEW OPTIONS TRADING VIDEO COURSE *** is a post from: Iron Condor - FREE Trading Videos

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*** JOIN US THIS THURSDAY for a FREE Iron Condor Trading WEBINAR ***

Your invited to join us this Thursday for a free
online Iron Condor trading webinar.

Shown will be: “How To Profit From The Markets Current
Extreme Volatility Using Iron Condors and Simple Credit
Spread Strategies”

Space is limited and spots fill fast so please reserve
your spot now – go here
To join our FREE Iron Condor / Option Income Strategy Online Newsletter go here

*** Join Us For LIVE Iron Condor WEBINAR *** is a post from: Iron Condor - FREE Trading Videos

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*** IRON CONDOR – EERIE STOCK MARKET PREDICTION ***

This week we revisited an old posting that we
shared here in this newsletter last June.

The following blurb was taken from the June 21,
2008 weekend report. Be sure to take a look at
the levels predicted compared to where we are now.

Go Here to join our Free Iron Condor / Option Income Online Newsletter.

*** IRON CONDOR – EERIE STOCK MARKET PREDICTION *** is a post from: Iron Condor - FREE Trading Videos

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One thing that has always driven me nuts with
option trading education is the lack of basic
‘How To’ information. I have bought huge books
and lengthy courses that are full of ‘What is
a call’ type info – but very, very few ever had
anything ‘Practical’ I could actually use to
make money. It has always been very hard to find
information that would give me simple step by
step directions on how to actually make money
consistently with options.

In this weeks newsletter we look at one source
that actually did provide applicable info – plus we
include a list of several other option educator
resources that do deliver on their claims.

To subscribe to our Iron Condor newsletter for Free, go here

Iron Condor – Practical ‘How To’ Information You Can Actually Use is a post from: Iron Condor - FREE Trading Videos

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Iron Condor: Following is an excerpt taken from the The Complete Iron Condor Strategy Guide E-Book …

IRON CONDOR: How To Know When It’s Time to Exit or Adjust

The Iron Condor Option Trading Strategy is a great trade.

Its simple to understand, easy to put on, has a high probability of success, kick off a great yield that can provide monthly income, and most of the time they work out beautifully.

MOST of the time.

The downside is that the Iron Condors Risk / Reward ratio is terrible – especially when compared with other option trading strategies.

Even though they DO work out just fine MOST of the time – all it takes is that ONE time to completely drain my account and put me out of the game for good.

That is, unless I know how and when to properly manage and adjust them.

There are different types of Iron Condors – each with their own different risk /reward ratios.

However, for illustration purposes, I will be using the main Iron Condor I use on a regular basis. Its what I call the ‘Plain Vanilla’ version of the Iron Condor.

Here it is:

10 point strike wings on an index vehicle, about one and a half standard deviations away from current price, between 30 and 50 days away from expiration. 80% or higher probability.

Now, using the above Iron Condor example – I could expect to take in a credit of around 1.00 on an average month. My risk would be 9.00.

Or, if I were to put on the above trade using 10 contracts, I would bring in a credit of around $1000.00 and be risking $9000.00

I am risking $9000.00 to make $1000.00

This risk to reward is terrible.

The above trade has around an 80% chance of success.

It should work out fine 8 times out of 10.

It’s the OTHER 2 times I need to be worried about.

Lets say I did the above iron condor for a total of 10 months – and I did absolutely NOTHING to manage or adjust. I just let the probabilities play out.

Heres what could happen…

I profit $1000.00 for 8 months.

$1000.00 X 8 = $8000.00 PROFIT.

Not bad. That’s almost a 100% return.

But then the other 2 months lets say I lose my max risk: $9000.00.

$9000.00 X 2 = 18000.00 LOSS

$8000.00 PROFIT – $18000.00 LOSS = 10,000.00 LOSS

Ouch!

Okay – lets say I don’t lose my max risk. Lets cut it in half.

Lose $4500.00 X 2 = $9000.00 LOSS

$8000.00 PROFIT – $9000.00 LOSS = 1,000.00 LOSS

Obviously – in order for this option trading strategy to work, I need to have a plan to protect – and keep – the profits I generate during the 8 good months – from the losses that will occur (and they WILL occur, believe me) during the 2 months that will be bad.

So what is that plan?

I need to know how to properly manage / adjust.

But� FIRST – I need to know WHEN to adjust.

So when do I adjust?

Lets go back to those numbers…

If I win $1000.00 8 times out of ten – HOW MUCH can I afford to LOSE 2 times out of ten?

If I can afford – both financially and psychologically – to just go back to break even at the end of ten months of trading, then my answer would be around $4000.00 per trade.

I could afford to absorb a loss of $4000.00, 2 trades out of 10.

At the end of ten months, I could be back at square one.

I win $1000.00 8 times, I lose $4000.00 2 times = $0 PROFIT.

On the other hand, lets say I dont want to make any less then $5000.00 during a 10 month span – then the most I can afford to lose on a trade would be around $1500.00

I win $1000.00 8 times, I lose $1500.00 2 times = $5000.00 PROFIT

THIS makes much more sense to me.

In the above example, $1500.00 equals about 1 and 1/2� times my original credit – or my expected monthly profit for the 8 good months.

I find this a good gauge to work off of.

I may even tighten it up to 1 times my original credit. But NEVER more than 2 times my original credit.

Anything more than 2 times would cause me to risk losing too much for my total income goal – AND it would wind up taking me MORE than 2 winning months just to make up for the loss – which could be hard to deal with emotionally.

Anything less than 1 times my original credit, I feel I am not giving the trade enough room to breathe and do its thing.

What this does is change the Iron Condors terrible 9 to 1 Risk / Reward Ratio to a much more acceptable 2 to 1 – or 1 to 1 Ratio.

So – before I ever even put a trade on – I decide what that ratio – or max acceptable dollar loss number – will be.

I’ll call this my ‘Maximum Pain Number’. It’s the maximum amount of dollars I am willing to lose while in the trade. In the above example it was 1 1/2 of my orginal / average monthly credit intake – or $1500.00 Loss.

I believe most times this number wont be hit.

But when it does (and it eventually WILL, believe me) – that’s my cue its time to either get out of the trade entirely – or adjust.

AND ACTUALLY – if I’m going to adjust, I need to begin doing so BEFORE my maximum pain number is hit – to take into account slippage and in order to give the new ‘adjustment’ position some room to breathe. If I am going to adjust, I usually begin planning/doing so when I am just over 3/4 of the way to hitting my maximum pain number.

This way, by not letting my losses get out of control, I always know that worst case scenario (I take my Maximum Pain Number LOSS) – based on the probabilities – I should still be profitable at the end of ten months.

AND best case scenario (I successfully adjust) – I could pull out of a losing trade and make it profitable once more.

I feel this concept might be the MOST IMPORTANT part of the Iron Condor strategy to fully understand and follow – religiously.

I believe in a poor risk to reward yet high probability trade – like the 80% probability Iron Condor I do – if I can just keep my losses under control and NEVER allow them to exceed my Maximum Pain Number (in this example 1 to 2 times my average monthly credit intake) – in the long run I will be profitable.

I NEVER allow an Iron Condor Loss to exceed my predetermined MAXIMUM PAIN NUMBER!

Until next time, Good Trading!

Join our FREE Iron Condor / Option Income Trading Newsletter by going here

Iron Condor is a post from: Iron Condor - FREE Trading Videos

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