Adjustments are what separate the men from the boys. Some traders and advisories say that you do not need adjustment. That they only lower your return and increase your commissions. That without adjustments your trades should work out due to the probabilities.

That has not been my experience. I have backtested several no adjustment iron condor strategies and have not found one that worked on a consistent basis without very large drawdowns in equity.

So why would an advisory not like adjustments? I think it is because it makes it much harder to keep subscribers. The easier the trade, the more people will stick around with the service. Even with my service when a trade gets hairy and there are several adjustments, members lose confidence and drop out. But I still have to trade the way I know how. If some people drop out, there is nothing I can do about it.

The iron condor trade will need an adjustment about 50% of the time if you are a conservative trader. When to adjust and how to adjust are difficult concepts that can take several trades to master. When it comes to iron condor trading, experience really is the key to success.

You should know when you will adjust before you enter the iron condor trade.

One common method of choosing an adjustment point is by watching the deltas of your short strikes. For example, one trader I know enter a condor spread position 27 days from expiration using short strikes that have a 18 delta (or as close to it as he can find). He then will adjust his position when his short strike is one or two strikes away from the money.

So if he was trading the RUT, and his short call strike was 600, he would adjust his call spread when the RUT got to 590. And he would adjust by using a butterfly to roll his call spread up one strike.

If he is trading one spread, he would be short 1 600 call and long 1 610 call. To adjust he would Buy 1 600 call, Sell 2 610 calls, and Buy 1 620 call. The result of this adjustment is that he is now short 1 610 call and long 1 620 call.

Keeping It Delta Neutral

Another method of adjusting the iron condor trade is to keep the position delta neutral. The delta of the trade tells you much you will make or lose should the underlying move up or down 1 point. If your trade has a delta of 50, you will make $50 if the underlying goes up 1 point. Thus, the lower your delta the less you make or lose when the underlying moves.

If you keep your trade as delta neutral you are looking to stay in the trade until the time decay kicks in.

Staying delta neutral sounds great, but it is very hard to do since delta is always changing. A position of delta – 100 one day can be a position of positive 40 delta the next if you decide to go this route, you will be adjusting often and your commission costs will be much higher.

Other Ways of Adjusting Iron Condors

A very popular method of adjusting is called rolling. If one side of your trade gets into trouble, you simply buy back that spread and sell another one farther away from the money. If there is not enough time left in the trade, or the premium of the farther away options is not high enough you can even roll forward to the next month.

Buying puts and calls can also be a good adjustment. By buying options, you will bring your delta closer to zero and even out your current p&l line. Long options act as a buffer to the market moving in one direction against you.

Another method that some bold traders use is to buy back the short option in a credit spread and keep the long option hoping that the underlying keeps moving in the same direction. So if the RUT is moving down rapidly, you can buy back the Put you sold, and keep the one you bought. If RUT keeps dropping, your long Put can make a lot of money.

This concludes the mini iron condor course. If you have any questions feel free to post them or email them to me.

If you missed any of the lessons, here you go:

Part 1 – Part 2 – Part 3 – Part 4

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Iron Condor Option Course Part Five

It has gone under a complete redesign to better communicate with readers and members as well as keep me better connected to you via, facebook, twitter, rss, youtube, etc.

And I also incorporated the Option Genius logo – the cartoon Einstein looking character. I think this brings out the playful side of the site. You can’t be serious all the time, right? After all, it’s just money.

If you are already on Facebook, you can click on the Like button to become a fan of the OptionGenius Facebook page. I haven’t launched it officially yet. Still getting some programming tricks for it. But the more friends and fans the better.

You can also click on the orange rss button to follow this blog and get notified whenever there is a new post.

All posts can easily be shared via Twitter or facebook by clicking on the Tweet or Share buttons next to each post.

OptionGenius now has it’s own YouTube channel as well but there is only one video right now. Many more soon to come.

So what do you think? I’d love your comments so please leave one.

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New Blog Redesign

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Visualizing Obama’s budget cuts

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Life Goes On

Got an email today from a member that was having a problem getting our emails. So when I investigated, it turns out that he has taken advantage of the $1 30 day trial FOUR TIMES. What a wonderful fellow (sarcasm). He went through the effort of using different email addresses and different names to create new accounts every time his 30 days was up so he would not have to pay the monthly fee.

And this is supposed to be someone who can afford to be investing? If you have thousands of dollars in the market, why would you go through all this trouble to screw me out of a few dollars a month?

You are stealing you loser. Why would you stoop so low to save a couple dollars a day?

And it’s not like he did not get any value of it. He was a member for four months and complained when he missed one email. He was obviously using the service. Hell, one good month pays for a whole year of the membership even if you only have $10,000 to invest, which is the minimum I suggest you start with.

Needless to say his account has been terminated and steps have been taken so he cannot sign up again.

Now I am going to have to waste precious time to see if this is a larger problem and many people are doing this or if this guy was the only one with no scruples, values, or decency.

On days like this, I wonder if it is worth it. It’s not like I am making millions of dollars with this site. It’s just something to keep me busy since the trades don’t take up that much time. 

Oh well, I guess it’s part of life. The sad thing is, that if others are doing this as well, I will have to do away with the $1 trial and then it will hurt the people who actually are honest enough to follow the rules.

Thanks for letting me vent. I feel a little better. I think I am going to go punch something now.

Post from: Option Selling To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

Why Are People So Cheap?

I think Congress should have term limits. 4-6 years and you are done. Go back to your job/business/etc. The founders of this nation were all citizen representatives. These people in Congress today have to inclination what the common man in their district is going through. They are not informed about the issues enough to vote properly and they care about getting reelected than doing any good.

They vote their own pocketbooks. And that is a hainous crime. I am really sick of Dems and Repubs fighting and attacking one another just because of party lines. I don’t care what party you belong to but your loyalty should be to the people.

It’s obscene that Congress passed salary increases for themselves when we were in the middle of 2 wars, an economic downturn, and “on the verge of economic collapse”.

I forgot the number but the recent Congress took more days off than any previous session of Congress including the infamous “Do Nothing Congress”. They make more money and they work fewer less. are they not ashamed of themselves? Or do they sit in their private conferences and just laugh at us for allowing them to basically rob us blind?

Let’s have some accountability in Congress. Let’s make some benchmarks and have Congress’ compensation tied to those benchmarks.

• If they balance the budget, they all get $20,000 for the year.
• If the number of high school students that go to university increases by 5% then get $10,000 a year.
• If GDP is positive, then get $10,000 for the year.

We have over 10% unemployment, yet Congress, most of whom are already millionaires, makes over $200,000 a year, gets the best medical plan around, and gets all their living expenses paid for.

What a shame.

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Freeze Congress Salaries Until We See How Their Laws Turn Out

What does this mean? It means that the markets are calming down almost back to normal, that volatility is coming out, that wild price swings in the stock market won’t be so large, and that option premiums won’t be so juicy.

But overall, a low VIX is fine with me. I don’t like all the wild price swings.  A couple years ago there was a saying, when the VIX is high, time to buy. When the VIX is low, look out below.

When the market drops, VIX moves up and if it gets too low, the market will correct by dropping.

I don’t know how much lower it will go, but I feel it will stabilize somewhere in the area around 20. For the last couple months, it has traded between 20 and 30. A good trade has been to short the market when the VIX hits close to 20 and buy when it gets to 25. That trade might be over. But I do not expect to see it go much lower. That means the market might pull back this week.

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VIX at its lowest point of the year

http://deliveriesgalore.com/2009/03/18/one-trillion-dollars/

$100

Let’s start with a simple $100 bill – nearly everyone has seen one, and most have used one at some point:

Ahh, hello Mr. Franklin…

$10,000

Now, lets take it a step further – a packet of $100 bills is less than 1/2 inch thick and is worth $10,000. This can easily fit in your pocket and can be used to buy a cheap car or a year of your kid’s tuition:

Vegas, here we come!

$1,000,000

This little pile of cash can easily fit into any backpack and weighs just about 22 lbs. Just in case you didn’t believe that those criminals in the movies couldn’t fit a million bucks in those briefcases, it’s very possible! You’re not likely to ever see this amount of cash in one place unless you work in a bank or are a high-level drug dealer:

What, you’re just gonna stand there? Get the money!

$100,000,000

Here we have $100 million – neatly fits on any standard pallet, weighing in at a little over one ton. You could stash this away in your bedroom and never work another day in your life. No one will ever see this kind of money in one place except Britney Spears and other celebrities:

That money isn’t going anywhere without a forklift…

$1,000,000,000

Now we’re talking big bucks… $1 billion – ten pallets worth of cold, hard cash. This is more than some countries’ GDP (Gross Domestic Product):

You wouldn’t even know what to do with this kind of money…

$1,000,000,000,000

Finally, here we are – one trillion dollars. That’s twelve zeros, go ahead and count ‘em! One MILLION million, or one thousand billion… This is just an obscene amount of money – the dollar value is more than all that are currently in circulation:

Can you still see the guy in the red shirt?

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What A Trillion Dollars Looks Like

Luckily I was not a Madoff investor. But from what I have learned about his investors, I would not have been one of them. There was a guest on CNBC that said out loud what I was thinking.

From CNBC.com

People who invested with Bernard Madoff were greedy and happy to accept high returns without probing too much in the way these were achieved, Hugh Hendry, chief investment officer at hedge fund Eclectica, told CNBC Tuesday.

 

“I’m sympathetic for people losing money but I think this pejorative term of being greedy still applies,” Hendry told CNBC.com. “There was an implicit greed in not questioning and just accepting unnatural returns.”

“They didn’t show the requisite amount of fear that would have generated the curiosity to investigate,” he said, adding that for every one Madoff investor, there were ten who stayed on the sidelines.

For over 20 years Madoff got these people returns of 10-12% a year with NO down years. No one was complaining then. When you listen to the “victims” they talk about their life savings disappearing. They wonder how they will pay their mortgages and living expenses. A couple have already committed suicide.

I don’t want to sound mean, but everyone needs to have some common sense. Why would you put 100% of your money in any one investment/stock/advisor? That’s insane. You work hard for your money and you turn it over to someone you don’t even know? I can understand someone investing 10-20% with Madoff, but 100%? That’s just asking for trouble.

But let’s look at it from another view. Madoff lost 100% of the money invested with him. Actually, not 100% because the government is busy recovering as much as they can. But to keep the math simple let’s call it 100%. If instead, we had put our money in a mutual fund, we would have lost anywhere from 30-60% from 2007 to the end of 2008. So Madoff lost about double what the “professionals” on Wall Street lost. BUT, over the years Madoff paid off a lot more in returns than any mutual fund. If that money way withdrawn, then investors would still be ahead, even after losing 100% of their original principal.

In a coming post I want to outline some of the lesson we can learn from Bernie Madoff. One of them is that you should actually know where you money is and what it is being invested in.

My problem is with the sentence. This man got more years in jail than murders, rapists, and child molesters. Is that fair? I don’t think so. No one forced any of his “victims” to give him money. Many of them BEGGED him to take it. There were no guns or threats used.

If his victims want so much justice let them pay for his prison bill. Why stick it to the taxpayer? Let the government use the money they recover from Bernie to pay for the cost of his incarceration. Use my tax money to keep the psychopath killers behind bars. Madoff is no threat to me.

One of the problems in today’s society is that no one want to take responsibility for themselves.

• You lost my money so it’s your fault. Even though I signed paperwork saying that you could lose it.
• You gave me a loan for a house I knew I couldn’t afford. Now I want a modification so I can stay in the house on which I am no longer making payments.
• I had 4 children out of wedlock with 4 different men who all left me and I can’t get a job because I am too fat to move so the government should pay for my house, my bills, my food, and give me money in the form of unemployment benefits and disability. ( I am not making this up. This woman once rented a house from me.  Section 8 pay for the rent and utilities. She got food stamps, and unemployment and disability. She was so fat that she could not go up the stairwell to get to the second floor.)
• I could go on and on.

That’s why I LOVE my members. They are people who want to invest their own money. They want to work hard and succeed without handouts or excuses.  They are one of the reasons I created my site – to help those that want to succeed.

Bernie, your lack of ethics is appalling. You should be punished severly. But 150 years is a bit much.

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150 Years For Madoff