Bread & Butter Iron Condors

Discussion in 'Options' started by cactiman, Aug 6, 2012.

  1. Opened the Upper Legs of some November SPY Iron Condors today.
    Sold 150/151 Bear Call Spreads into Resistance at 140.02.
    Is 150 high enough? Time will tell.
    Will now wait for a Pullback to a Higher Low in the Uptrend (around 135?), and then Open the Lower Legs.
    Probably with 130/129 Bear Put Spreads, for a total Range of 20 points.
    Should make 13-15% per month on the trade, if all goes according to plan.
    Anyone else doing "Steady Eddie" trades like this?
  2. I have not traded the SPY... been trading Iron Condors (legging into them) on RUT and NDX.... But always farther out... I look at Deltas of below 5 before I trade.

    Not 10-15% a month, but maybe 2-3%, but I can sleep at night.
  3. @cactiman:

    How much of your account do you allocate to an IC trade?

    What do you do if it goes against you?

  4. Nothing you can do but take the loss, or wait it out to expiry. The short options of the IC are you insurance to minimize the loss, a very simple concept which doesn't need second guessing once the position is open.

  5. That's why I asked him about position sizing. If taking a close to total loss is the only option then the overall position should be fairly small.
  6. Roll parameters.. there's a article about it in the last stocks and commodities mag call queen of condors.

    Its on the rut to...
  7. ... where? don't keep me in suspense.
    Do you have a URL to that article?
  8. I'm on my phone. I'll post the whole article tomorrow rocky...
  9. The Queen Of The Iron Condors
    Find out what one trader did when her favorite trading
    vehicle was down 43 points one Monday, en route to a 25%
    July–October, top-to-bottom loss.
    by John Sarkett

    her worldwide trading community, Amy Meissner is
    known as “the queen of the iron condors.” Part of that
    is attitude. There was one recent day when the Russell
    2000 (RUT), her favorite trading vehicle, was down 43 points
    en route to a 25% July–October, top-to-bottom loss.
    “I wasn’t worried,” she explained. “First of all, the RUT was
    already oversold. Second, the catalyst for the loss was political
    wrangling in Washington over the debt ceiling, something that
    had been going on for months. And my short put options had
    only moved from -8 delta to -14 delta on the open, then -16
    during the day, and 16 is where I adjust. It was manageable.”
    It’s that kind of unflappability that makes Meissner wellsuited
    to her role as an option queen.
    Third time’s the charm
    Meissner began her trading in the 1990s. “I learned about options
    from an article I had read and I decided to give it a try,”
    she explains. “It was much more expensive to trade back then,
    and only special brokerage firms would trade options.”
    She started by selling SPX credit spreads. The venture
    lasted several months before she gave it up. Meissner decided
    to give the option initiative another look in 2005, opening a
    $20,000 discretionary account with an online advisory firm.
    Their specialty: iron condorsAt the outset, it was steady as
    she goes. It took about half a year
    to boost the account to $28,000, a
    40% return — stunning, especially
    in the aftermath of the 2000–01
    tech meltdown.
    Then came sudden destruction.
    “One Wednesday before expiration,
    I was nervous about holding
    through Friday, and said I wanted
    to cover,” she recalls. “The traders
    assured me there was a high statistical
    probability of the options
    going out at zero.” It was part of
    the firm’s method to let options
    expire worthless. It was a good
    idea, until it’s not.
    You know what happened next.
    Trying to accumulate the last few
    pennies, with no risk management
    plan in place other than an aim for
    those options to expire worthless,
    Meissner lost $14,000 on a large
    down move in her account and
    was cut in half.
    A short time later she received
    a postcard in the mail promoting a
    new service, something called “option
    mentoring.” She was intrigued
    enough to give it a go, thinking that
    with some hard work she would
    be better able to manage her own
    funds versus trusting others with
    a discretionary account.
    So she went back to school, this
    time into the school of risk management.
    It was her best investment,
    she says now, and with annual
    returns averaging 22.46% since
    trading on her own, it has repaid
    itself many times since then.Six years later, Sheridan Option Mentoring is still part of
    her team. It was Dan Sheridan who nicknamed her “queen of
    the iron condors.” Meissner is “one of the most professional
    traders in our community, and one of the most consistent,”
    he says. “She will tweak her approach from time to time,
    but by and large, she approaches the market with admirable
    discipline, and as a result, she reaps the rewards.”
    The method
    Meissner’s methods have been refined a bit since she started
    trading iron condors, but here’s her latest methodology (Figure
    1). Approximately 80 to 88 days out she will sell a Russell 2000
    iron condor. She sells the puts at minus 8 delta or so, the calls at
    12 delta or thereabouts, and then buys coverage some 30 points
    higher on the calls, 30 points lower on the puts. She aims to generate an approximate $4 credit against a $30 risk. The total
    cash credit then would be about $4,000 for every 10 contracts
    — that is, $4 credit x 10 contracts x $100 per contract.
    Should the market move against her, which is often the case,
    she will adjust at -16 delta, meaning that if the market declines,
    she will buy in her put credit spread, and then resell it 30 RUT
    points lower. She will sell 150% of the original size as well to
    make up for the loss (if the original position was 20 contracts,
    she will sell 30 on the adjustment). She can do this two or threetimes before giving up on a trade and either
    taking a loss or scratching out.
    If the market declines and the call credit
    spread goes to 0.40 or under (from an original
    $2 or so), she will exit, and not resell
    it lower. This removes the possibility of
    whiplash should the market bounce back
    up and cause a new call spread to become a
    loser very quickly. The process is reversed
    to the upside (Figure 2).
    Changes over the years include days to
    expiration and entry style. She began with
    more customary 30- and 60-day condors,
    one of each, but she has now settled on the longer time frame
    due to the volatility in the market. She originally legged into
    the trade, selling put credit spread side when the market was
    down, selling the call credit spread when the market rebounded,
    but since then has decided it is simpler, more effective, and
    more carefree to put it all on at once, because losses on one
    side will be offset by gains on the other.
    Unlike many traders whose ambition is to get big as fast as
    possible, which for most means 100-contract condors and up, thus
    theoretically putting $90,000 and more of risk on the table each
    month, Amy Meissner is more stealth. For every 100 contracts
    of a typical 10-point condor, she will trade 25 contracts of a
    30-point condor instead, cutting her risk to about $65,000.
    Why not 10-point wide strikes in her RUT condors, like most
    everyone else in options? Adjusting large quantities of contracts
    is a factor. Start with 25, roll twice for adjustments, and you wind
    up with about 55 to 60 contracts, versus 225 with a 100-contract
    start increased twice at 150%. Fifty-five contracts is much more
    manageable than 225 contracts, Meissner says.
    Her profit target is approximately 80% of the original credit.
    If she is taking in $10,000 on a typical trade on initiation (25
    contracts x $4 x $100 per point on the RUT), and she can
    offset her positions and capture $8,000, she’s out. Often this
    is the case after 45 days.There will be blood
    There will be losers as well. It is
    part of the business, expected and
    managed. Meissner describes the
    process as “three or four steps
    forward and one step back.” On the monthly level, she will typically expect to lose or break
    even one or two or even three months a year (though in 2011
    there were no monthly losses, as you can see from Figure 3)
    but keeps the losses to 100% to 150% of her typical monthly
    credit — that is, $10,000 or so. Employing some quick math,
    if she can generate about $8,000, 10 months per year, and
    expect losses twice of $10,000, she can still net something
    like $60,000 per year, just with the RUT condor alone. And
    do it without breaking much of a sweat.Pieces and prospects
    Here are a few odds and ends of Meissner’s
    trading strategy:
    n She uses Investors Intelligence to help formulate
    a market opinion. This helps her get
    a handle on oversold and overbought conditions
    and gives her a second opinion useful
    for determining adjustment sizes, leaning
    her deltas to long and short, and so on.
    n She likes to enter condors on Thursdays
    or Fridays to gain weekend decay.
    n She sets alerts for both RUT and deltas, sending
    messages to her emails and smartphone.
    This helps her get off the screen as well.
    n She is part of a larger trading community
    via Sheridan Option Mentoring. She appropriates
    new ideas and concepts and
    also contributes as a thoughtful webinar
    interview subject. There are some six-plus
    hours of her discussions archived on the site,
    plus other discussions on her methods.
    Boiling it down as simply as possible, Meissner
    earns her monthly checks by rolling her
    credit spreads. She aims to increase her returns
    going forward by being more consistent, to make her condor
    work an even smoother-running money machine.
    Recently, she purchased an electric motor-assist bicycle
    to help her make her 25-mile bike expeditions a little easier
    against the ocean winds, a nice metaphor for her powerful
    ability to tame and manage the winds of market change.
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  10. here is her 2011 record..

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    #10     Aug 7, 2012