Jeff’s Journal – Intro – Iron Condors
March 7th, 2010
·
by Jeff · Filed Under: Iron Condors · Jeff's Journal
Sunday March 7, 2010
This following is going to be a journal of my newest venture, iron condor and double calendar option trading. A few years ago, I took a course called “Become a Hands-Off Millionaire” It taught trading iron condors on the SPX & RUT indices.
I had some success trading irons, but also took two substantial losses. Part of it was my fault, in reality it was entirely my fault. However looking back, I had NO business trading those products. This new journey is a result of me taking yet another trading course. The idea behind these strategies is to capture the time decay of option premium. The objectives are to manage risk and trade my plan.
The products I will be trading are liquid, have tight bid/ask spreads and are heavily traded. These are the DIA, EEM, IWM & SPY. Trades will be initiated 30-40 days prior to expiration. Trades will be managed and adjusted as required. I will start out with 1-2 contracts in each product. Paper trading is an option but I believe that by having real positions, it will keep me involved and I will learn more too. I will probably sell iron condors in a couple and buy double calendars in the others.
In the previous course we were taught to route the iron condors as individual spreads. Today, I am routing as iron condors. I was always petrified that the index would move dramatically against both of my short strikes. If it did (and believe me IT DID) there was no adjustment taught, we were told to get out. We of course were told that we could “negotiate” price. Well I have found about 90% of the time the only way I could “haggle” was if the underlying moved causing the option prices to go in my favor.
Today, there are 40 days to expiration (DTE) for April options. I will route trades a bit better than the mid. It is not imperative that I get filled this instant. I get my price or I re-evaluate and re-route tomorrow.
Hello Owen, First of all, thank you *very much* for sharing your knowledge on option trading with the internet community – watching your movies on the broken wing butterfly helps immensely to understand how to mitigate the risk after the stock has moved into the appropriate direction. Great stuff, nicely explained! Still, I have a question: How do you typically start building the umbrella? Does it only involve BWBs? Looking at the risk graph of your IWM position (March 2010) it seems as if “at the beginning” there was a straddle (since the graph points upward on both sides). To reduce the cost of this straddle you would then fill in some credit ATM BWB’s and let the trade evolve… is this maybe how you proceed? Or what would you suggest instead? Do you have an example sequence of steps you typically do in order to lift your umbrella into the air? Thanks again! Best regards, Michael
Thanks for the complement and allow me this opportunity to apologize for not replying/posting here more often.
I’m not going to address the IWM question only because I don’t trade BWBs on IWM any longer. (I have forgotten that I once did) – sorry guys.
However, in answer to the “Umbrella” part – As the market moves around, add positions to increase your points (short points) where you will be profitable. As an example, if the market (the market being GLD) is trading 128, Sell the 128. When it moves to 132, Sell the 132. Maybe that will be in the same month as the 128, maybe not; it all depends upon timing. The goal being to have a risk graph that shows a large umbrella over a number of strikes.
Start with a contract or two and then add as you go. Over time you will become comfortable with the strategy and it will be second nature to you. Remember, you can’t trade someone else’s trading plan; you must develop your own trading plan and be consistent.