ALL ABOUT IRON CONDORS

If you are looking for a way to make consistent trading profits, with above average returns, a very high probability of success, and without having to stare at your monitor all day long, the iron condor is for you.

The Iron Condor is considered an advanced option trading strategy. It is considered advanced because it uses more than just 2 options. The condor is made up of 4 different options and thus the trader must be aware of all four options and their prices. Once you trade a few condors, it becomes child's play. But for those that have never traded condors before it can be confusing.

I like to think of the iron condor as two credit spreads. One with Calls and one with Puts. Have both of them on at the same time and you have an Iron Condor. If already you trade credit spreads, you have to start trading condors. You can double your return without needing any more margin.

Basically the Iron Condor puts a box around a stock. As long as the stock price stays within the box, the condor makes money. If the stock goes outside the box, the condor losses money.

There are many variations of the Condor. I prefer to trade them where I can make around 15% in a month and have an 80% probability of success. You can trade condors with as high as 90% probability of profit or as low as 50% probability of profit. The higher the chance of profit, the less the actual amount of profit. Less risk: less reward.

But still, even with an 80% probability of profit it is common to make 10% profit on this trade. And since the trade takes less than 2 months, that is a pretty nice return. And that is why many people consider the Iron Condor a conservative trading strategy even though it can produce very nice returns.

It is conservative enough that you can trade them in your IRA retirement account.

You can even increase your probability of profit by adjusting your condor position when it gets into trouble. This statement will be argued against by some traders who say that the iron condor is a trade that should not be adjusted. But I feel that every trade should have proper money management and adjustment techniques so that no one trade wipes you out.

If you sign up for my FREE Option Selling Course I will show you some examples of Iron Condor trades I did with realmoney and how I adjusted them to stay out of trouble. To sign up just fill out your name and email in the sign up form at the Top, Right of this page.

But let's go over a simple example of a Condor.

Let's say we think Google is going to trade between 400 and 450 for the next 30 days. To make an iron condor we would sell a Call credit spread and Put credit spread.

Sell to Open 1 Jan 450 Call
Buy to Open 1 Jan 460 Call
Sell to Open 1 Jan 400 Put
Buy to Open 1 Jan 390 Put

In the above example, we sold a call with a 450 strike price and bought one at the 460 strike price. So if GOOG stays below 450, this part of the trade makes money. If GOOG goes above 450, the 460 Calls protects us and limits our loss.

I also sold a 400 Put and bought a 390 Put. If GOOG stays above 400, this part of the trade makes money.

So with this trade I want GOOG to stay between 400 and 450. It can move up and down in its box. That's fine, just stay in the box.

Everyday that goes by, the options lose value. That means I make money everyday. When the options lose enough value I can exit the trade by buying back the iron condor or just let it expire worthless.

I trade Iron Condors every month. For just $1 you can get access to my site and my current trades for One Full Month. You can also see my past trades and how I adjusted them when I had to. Find out more about becoming a member.

Pricing A Condor

Let's add some prices to our earlier example to see how much we can make.

Sell to Open 1 Jan 450 Call at 4.20 credit
Buy to Open 1 Jan 460 Call at 3.1 debit
Sell to Open 1 Jan 400 Put at 5.9 credit
Buy to Open 1 Jan 390 Put at 4.3 debit

I made these prices up for the example.

So how much can we make?

Calls (4.20 minus 3.10) = 1.10
Puts (5.90 minus 4.30) = 1.60

We can make a total of 2.70 credit which translates to $270 dollars.

How much can we lose?

The margin for this trade is the difference between the strikes minus the credit. Since the strikes are 10 points apart that is $1,000. Remember each option is 100 shares and the option prices are per share. Our credit is $270. So the margin we would have to have in our account to do this trade is $730. That is also the maximum we could lose on this trade.

If we take the credit and dived by the margin we get our potential return on investment. 270/730 = 37%. Not bad for a month's trade.

With this much profit potential, our probability of profit would probably be around 65%. If we wanted a higher probability of profit we would have to move our strikes out farther. So instead of selling the 400 and the 450, we could sell the 375 and the 475. That will result in less credit (profit), but a higher chance of making a profit.

Entering the Iron Condor

Most option traders I know do Iron Condors on Indexes and ETFs. Like RUT, SPX, IWM, SPY, DIA, XLE, and others. This is done because there is less to worry about. Bad news for one company will not hurt the position much. An earnings surprise or dissapntment will not hurt the position much. Plus these instruments are very large and very liquid.

There are two way to know which strike prices to choose for your condor.

1. Technical analysis. If you are a chartist and determine support/resistance/ and retracements levels you can use this information to determine your strikes.

2. Statistics. You can also use volatility and standard deviation formulas to determine which strikes to sell based on what probability of profit you want.

I myself like the statistics method, because I have found that technicals work except when they don't and I would rather not rely on them that much. Plus the statistical method is easier - it's almost formulaic.

Adjusting the Iron Condor

Adjustments are what separate the traders from the dabblers. There are hundreds of ways to adjust a condor and each trader has his/her own favorites. I have a couple techniques I like to use. But it is hard to know how you will adjust before it is time to adjust.

For example, if you get into an iron condor in GOOG today, and the price of the stock goes from 400 to 450 tomorrow. That's over a 10% move in one day. With a move like that I would use one technique for adjustment.

On the other hand if it takes GOOG three weeks to go from 400 to 450, I can adjust in a different way or maybe not at all.

The adjustment and the adjustment points vary based on the implied volatility of the options involved.

If you are a member of Option Genius, you do not need to worry about when to adjust because I will tell you exactly when and how I adjust each of my trades. Check it Out for just $1.

The Biggest Problem With The Iron Condor

The most common complaint new traders have is that you can lose a lot of money in the iron condor. Since you are risking a lot more money than you stand to make even one bad month can wipe out several months of profits.

And that would be true, if you let that happen. But if you are like me, and treat trading as a business and not a substitute for Vegas, then you would not let your position lose the max loss.

As part of my money management rules, I have a max loss that I would be willing to take on any trade. Once I reach my max loss, (which is much less than the maximum I could lose on the trade), I get out. I never want to lose more in one month than I can make in a month or two.

As soon as I get in a trade, I have a plan on how much I am willing to lose. As long as I do not hit that amount, I can stay in the trade.

I trade Iron Condors every month. For just $1 you can get access to my site and my current trades for One Full Month. You can also see my past trades and how I have never lost the max amount on any Condor. Join Me Today.

The Lazy Person's Trade: The Iron Condor

Trading the iron condor the way I do takes just minutes every day. It takes literally less than five minutes to place the trade. Then the majority of days I just sit back and watch the markets. In many months, that's all you have to do and the trade will expire earning you the maximum profit. In other months I have to adjust which again takes less than 5 minutes.

You can even trade Iron Condors in your IRA. They might just be a retiree's best friend.

To learn more about Iron Condors including going through a couple trades with me, sign up for my FREE Option Selling Course. To sign up just fill out your name and email in the sign up form at the Top, Right of this page.