"The Iron Condor is not boring."

Hi, I just went through the course.  I have a question on the iron condor.  I had subscribed to another site that did those.  They said they picked strike prices far away from the current price so that the odds were better than 90% that they would make money.  Of course the market started to gyrate 100s of points per day and everyone was holding their breath for days. So I learned that these spread trades are not boring at all but can be extremely stressful.  I was glad to see that you weren’t just touting you make money 90% of the time.  I see that all the time but they fail to explain that you can lose 100% of your money up to 10% of the time.  That makes the strategy not conservative at all.  So my question is how much capital would you allocate to iron condors?  Also, in your example, when the price dropped near the lower strike price you closed out the options on that side and then entered into new options just farther down in price.  I can’t figure out why that couldn’t be done all the time so you really could have entered into this trade even when the market was swinging wildly in Oct.  I guess a follow up to that is how did you end up losing 30+% in that one month?  It would be great to learn what can go wrong.  Thanks.

First you have to limit your loss. 100% loss is not acceptable. I am out of a trade when I am down around 20%. The month I lost was a very large, sharp, quick, move. That is the worst enemy of the condor.
Most months you have no problems, like this month. i though it would be wild, but even with earnings I have not had to adjust my condors at all. Both are doing nicely.
If the price moves towards my strikes, at a certain point I will roll the options away from the money. That is a simple adjustment and one of the ways that help me to stay in the trade and profit even when the market does move. But last September, it was just too much too fast and i just got out of the market instead of try to play with it. I took my loss and exited. Which saved me because Oct was another horrible month for the condor. Through experience I felt that the market was not acting correctly and stayed out of the market.


  1. Xueren Zhang on October 26, 2009 at 7:47 pm

    I started Iron Condor just a few months ago with OG.To my understanding, if the markets ( SPX or RUT which is the stable of OG ) do not go up or down 8%-10% or gyrate violently,the strategy will win.Otherwise,it will put us sleepless unless we just do 1 or 2 contracts.Adjustments are necessary,but they mean a loss is expected,even though a narrower one.Iron Condor works perfectly in a real dead market,a real flat market,or a mild swing of 3% to 5%,because we just sit there comfortably by seeing the options expired worthless.I think the strikes need to be far enough to 12% to 15% of current SPX and RUT,rather to have less credit than too greedy to have more premium.Therefore,I suggest that OG may not claim 8% to 10% return per month in up,down,and flat market.It will be wonderful to have 4%-6% return for a certain percentage of total portfolio.Then,how much fund one may invest in this kind of business is highly debatable.In my personal opinion, depending on risk levels,no more than 5% to 10% of cash may be allocated .

    Neverthless,I have to agree that Iron Condor and other option selling strategies are very powerful to make monthly income,using a few percent of one’s cash.To be a little less greedy ( forget 10% return per month ) and to have less expectation of so-called financial freedom,we may trade profitably on a long term basis.

  2. Eddy on October 27, 2009 at 12:54 pm

    To avoid losing sleep when trading larger ammounts perhaps its a good idea to open contingent trade closing orders.

    I don’t know whether the orders will be executed during fast moving markets. Anyone having experience with this??

    Can we program the orders ourselves, or let TOS take the responsibilty? Any thoughts???

    If you want to close the condor based on the price of the underlying index, you need to set up a closing order with a stock contingency.

    If you want to close the condor based on the price of the condor, you would place a stop order.

    Would there be anyway to close the Condor based on a reading of short strike delta greek? TOS says no way possible.. Anyone saying Yes??

  3. Genius on October 27, 2009 at 5:48 pm

    Even with the S&P up over 9% in April my trades still had a 11.8% profit.

    To say that making an adjustment in a trade is measn that you are going to have a loss is just silly. Look at the past trades and you will see that even with adjustments I still make a pretty penny on the trade.

    The RUT condor for Oct expiration had adjustments and still make 5.9%. The adjustment is what lets me sleep at night. I know that my strikes are well away from the money and that in all likelyhood I will still make money.

    There are hedge funds that use iron condors for millions of dollars. Floor traders sell thousands of options at a time. And I have friends who have several hundred thousand dollars who only trade a variation of the condor on the RUT.

  4. Genius on October 27, 2009 at 5:49 pm

    I know you can get an alert from TOS when the short strike hits a certain delta, and so you can probably set up an order to execute as well. But it would have to be a multi step order. First the delta hits this number, then the order is posted.

  5. Xueren Zhang on October 27, 2009 at 6:51 pm

    What I mean is that in certain markets like Sept and Oct 2008,there were huge swings of 300 to 600 points,and no matter what adjustments you make,iron condor is not working,and people would have worried at night.With billions of capitals,very few hedge funds were making money.How could small guys make anything by doing condors? The best we could do was to avoid the market like OG did last SEPT 08? Then,there is an asset allocation problem.How many percentage of one’s fund should be put into condor trades? If the person has $100k,can he or she invest all the money in option selling and condor business? I would not expect OG will recommend to do so. Then,hedge fund people are playing clients’money,not their own money ( I had quite a bit of experiences ).That’s why they have lost so much money from their clients during this crisis without taking much responsibility.

    In my opinion,iron condor is a very good business which can own excellent ROI with a limited percentage of our money.However,I hardly imagine one can put all money in it with good sleep,and dream about doubling money every year.

    I like Iron Condor recommendation made by OG,but I feel skeptical that we can put a large amount of fund and make 10% every month.

    during this crisis.Therefore,using hedge fund people as example is silly,because we are playing our own money

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