Here’s an iron condor option trading concern from one of our members:
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 condor 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.
Iron Condor Strategies
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.
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