Iron Condors

Discussion in 'Options' started by Otis, Oct 24, 2008.

  1. Otis

    Otis

    I would like to get some opinions from people with exp on the subject of Iron condors, Iv read a lot about them but would like to know the real risks they have in this market. I have had some success trading stocks . but I would like some info that wasnt from a broker. What would be a reasonable return with 100k account? Could a person make a modest living ( 50k) in the real world with this kind of investment , Thanks all :confused:
     
  2. The real risks they have in this market, RIGHT NOW?

    Huge.

    The market returns to sanity (at some later, unforseen date) and the VIX and the RVX drop below 30? Maybe 5% a month potential returns annualized yearly if you're a good risk manager and understand how to trade them.
     
  3. 1) 50k may be a modest living, but that's a 50% return on your money.

    2) Iron condors can produce remarkable profits when all is going well. That will allow you to meet your target. But don't count on this as normal. 50% is an outstanding return with any strategy and if that's your target, you will be taking too much risk in an attempt to achieve it.

    3) One major problems with iron condors is the overconfidence that sets in when you begin with a series of profitable months. [Don't worry - that's not likely to occur right now with these very volatile markets.]

    4) Take this as a guarantee: You will not make money every month.

    5) You should have more winning months than losing months. But the real risk is that losses can overwhelm profits.

    6) The #1 key to sucess is risk management. you must be certain your losses are reasonable and not allowed to grow large - in a desperate attempt to get even. Accept your losses and move on.

    7) There are different ways to approach iron condors. European style index options are ideal (SPX, RUT, NDX). But NOT OEX (it's American style).

    Assume we are discussing 10-point spreads below: Example:
    Sell 900/910 call spread and 800/810 put spread:

    a) Some people love selling very FOTM options and collecting 50 cents or less for an iron condor. The probability of success is high, and the maximum profit is $50 per $950 margin requirement.

    That's a bad idea, IMHO. Too much can be lost trying for a small profit. You'll win often, but one disaster can wipe out a years worth of profits.

    b) Sell a 10 point spread for $2 to $4. less chance of success, but if you earn $1 per month, that's a very good return on margin ($1000 less cash collected).

    Some like front month
    Others like more time.
    Pros and cons to each.

    Read more about iron condors at my blog:
    http://blog.mdwoptions.com/options_for_rookies/2008/06/recommended-o-3.html

    PS It may seem insane to try this method now, but option premium is attractive to sell - if you own insurance.



    Mark
    http://blog.mdwoptions.com/options_for_rookies/
     
  4. If people could make 50% a year, we'd all own Manhattan. The Federal deficit would be wiped out from the taxes paid. No one would work because we'd borrow up to the gills and would retire by age 30.

    It's possible to make 50% in a year. I've done it once... and on something more than a small account. But to sustain it is highly unlikely if not next to impossible.
     
  5. How about John Arnold of Centaurus... He has a documented record of 100%+ - 200%+ each year over the last 5 years. Perhaps he's more the exception than the rule...

    Walt
     
  6. mark,

    when do you close out the iron condor as stop loss? Based on your method, you write otm iron condors that are few months out and take the profit ~1month before expiration and gamma risk become too high.

    Lets say you wrote an IC 3months out, then 2 weeks later the underlying hit your strike so one of your leg is now atm and of course the position has an unrealized loss. What do you do at this point, do you close it out or do you adjust, and how do you adjust? by rolling or buying additional insurance.
     
  7.  
  8. Mark,
    I'd like to say that I've read your book after finding you on Elite Trader. I have to congratulate you on such a fine accomplishment. I think your book would have to rate in the top 5 options books that I've read. Not because I want to trade exactly the way you do. But because it is so clearly written, and because you cause the reader to think about options in a way differently than most of what has been written. You've written it clearly enough for rookies to understand, but it useful for even more experienced options traders.
     
  9. mike007

    mike007

    I prefer a Reverse Iron Condor. More profit and less of a risk of major loss.
     
  10. Thank you. Glad you found it worthwhile.

    Best regards,

    Mark
     
    #10     Oct 26, 2008