Iron Condor - Oh Man, I Want My Mommy…
The Iron Condor is perhaps the most dangerous option strategy around.
See here’s the deal: when a new fresh faced option trader first hears of this trading strategy - he or she becomes so enamoured with it that they just can’t seem to help but jump right into trading them - risking way too much money - and without much thought of what they are going to do if the trade starts to go wrong.
And unfortunately what always seems to happen to a high percentage of them is that they promptly wind up getting their trading accounts demolished and their heads handed to them on a platter.
Now stop.
Before you start to get the wrong impression, please, let me clarify something here.
I actually LIKE iron condors. I like them ALOT.
I think the iron condor really IS a great trade.
And yes, I absolutely believe all those stories and claims you hear swirling around about iron condors generating ten percent plus monthly returns and providing trades that have the probability of winning somewhere in the range of eighty to ninety percent. In fact, I KNOW those stories are true because I see it happen all the time in my very own trading account.
The problem is - there is something big that is being left out of all those claims and stories - and this something is causing way too many fresh new doe eyed option traders to misunderstand this strategy right from the beginning and blindly jump into them with completely wrong expectations.
Yes it’s true that iron condors and credit spreads can be put on with an eighty to ninety percent probability of winning. And yes it’s true that they can generate returns of over ten percent a month. BUT - they also come with a dangerous risk to reward ratio that can be in the range of ten to one.
10 to 1! That means that in order to try and make just one dollar, you need to be willing to risk ten. Or, put another way - in order to make 100 dollars, you need to risk 1,000 dollars. Or - risk $10,000.00 to hopefully make just $1,000.00!
And as mammy used to say to us kids - ‘that ain’t nothin but a real awful bad egg’.
Because once you do the math you find that even with those glorious monthly returns with 80 to 90 percent probability of winning - all it takes is just one problem month to come along and cause a loss that will completely obliterate the 8 to 9 wins you’ve managed to rack up - as well as potentially the rest of your entire account!
Nevertheless…
There is still hope…
Like I said before, I LOVE the iron condor trade.
Over the last ten years it’s been extremely profitable for me.
So obviously there’s a way around that horrible risk to reward issue and the inevitable problematic losing months.
And there absolutely is.
It’s all in how you manage the trade.
That risk to reward problem quickly becomes a complete non issue as soon as you educate yourself on the proper way to initially set these trades up and how to correctly manage and adjust them.
You just need to take the time BEFORE jumping into the iron condor pool to equip yourself with this little bit of knowledge. A few simple ‘tricks of the trade’ - so when those problem months DO come along (and they WILL believe me) - you will know exactly what you need to do to immediately squash that threat, easily adjust yourself out of the problem, and experience the iron condor for all it’s ‘really’ cracked up to be.
Consistent Returns With Option Trading
I had an intriguing conversation today with an option trader who has been searching for the secret to making consistent returns in option trading for many years. He made many familiar points.
Something that stood out was when he said “Non-directional option trading doesn’t mean we can make money in any direction. It means that we make money if the underlying doesn’t move in any direction. In other words, it’s still a directional trade, sideways.” I couldn’t agree more, and it’s been advertised that it’s easy to make money with options because we can make money on any direction. In some respects this is true, but in others it’s not.
Those of you trading the strategy that most courses and books teach know exactly what I’m talking about. The Iron Condor is just as directional as most option trades, only that its direction is sideways. So if you’re trading that strategy in 2009, you probably aren’t making anything. It’s just as hard for some to predict a sideways move as it is an up or down.
Over the years, I’ve received many calls from traders loosing massive chunks of their accounts from trading condors and credit spreads. Sadly, it’s always the same complaint; “It was going so well for several months, then all the sudden I lost nearly my whole account in one day.” I’ve heard this time and time again, and it’s about time something was done about it!
Therefore, I decided I wouldn’t teach traditional Condors and Credit Spreads. Using them will end you up a few days from expiration, with the RUT is right at your short strike, because you traded the way most people traded these strategies. Soon you’ll be telling your sob story to your friends and trying to hide your financial travesty from your wife! This is no laughing matter. It can happen to anyone, including you. Is the stress really worth sticking to traditional methods?
In response to this problem San Jose Options Mentoring has reinvented Iron Condors and Credit Spreads. The less you have to adjust your condor, the better off you will be in most cases and we have a different technique which gives the underlying much more flexibility, lowering our stress level and keeping us out away from a disastrous scenario.
So you know we have a safer way to trade Condors, but we’ve also developed great techniques to lock-in our profits on them. Normally option traders exit their trades when they make a profit, but we can lock-in our profits and stay in the trade.
To conclude, even if we have a condor move against us, we have developed a technique that earns us a free bonus trade! We may experience a rough month now and again, but now we get an outstanding, free trade out of it where while other traders will take the loss and struggle on.
Win or lose, San Jose Options is the best way to trade Iron Condors along with many other strategies.
