Options education question

Thanks everyone for the valuable feedback. I used the figure 2% per month because I have been hearing from IC traders that 3% per month was possible, so I thought I was being conservative. O well. I have put several Iron Condors on my thinkorswim live simulation and they all expired successfully. But, it really isn’t a safe strategy because the draw down can be huge (like half of your investment). Worse, they are not low stress because even though you have a probability of success of 80%, the probability of touching can be around 50%. That means even if you win, you are going to have sleepless nights. The courses I mentioned claimed they have methodologies for reducing the risk using hedging and adjustments. An Iron Condor by itself does not appear safe for a large retirement portfolio where you don’t want a lot of draw down. So are you saying, even with hedging and adjustments you can’t make money with options - considered as an entire portfolio using ICs along with other strategies?

 

If you really want an education in iron condors, read the SPX credit thread on ET from start to finish. You'll see all the pro and cons in that thread. If you want a shorter more straight to the point thread, read Howard cohodas credit spread journal.

There is no such thing as an adjustment in option trading. It's a whole new trade. These snakes sell this term as a marketing ploy because it sounds so good to the newbie. If something goes wrong, all you have to do is adjust! LOL. It doesn't work that way.

The real reason IC's don't work is not because they are mathematically flawed. They are no different then any other combination of options with some weird name given to them with negative edge. The reason they don't work is because the trader doing them does not know how to trade. IC's are sold to the public as an alternative to actually becoming a good trader. Just slap these spreads on and who cares where the market goes. The reality is, IC traders probably need to be even better traders then straight up directional traders if only because they have far more risk and more dynamic variables to manage all at one time. This part gets left out of the sales pitch.

If you honestly want to manage your retirement money well, find some good mutual funds that have low exposure to equity. Put 40% of your money in there and 60% in government bonds. You'll far outperform any iron condor trader.

 

Risk and reward go hand in hand. To generate a decent return, you have to take on some risk and therein lies the problem. Almost no option position in and of itself is 100% safe, including iron condors.

I don't think that it matters whether you consider adjusting to be a continuation of the initial trade or a new trade. In either case, to succeed long term, you're going to need skills (timing, selection, discipline, money management). Some luck doesn't hurt either.

 

As a New Yorker I say, Ouch!

Bob

 

Yep that's pretty much it. Mav said it the best.

 

I didn't see the guy explain the actual trade structure but it isn't difficult to put the pieces together.

SJO: this guy is trying to patent his trade structure...really?

DS: heard good things, he is humble and educates for the cboe.

 

I said "other place" ..meant "other places" of course, and I guess NYC may have a few traders around somewhere, LOL.

Don

 

Since you say you have big money, why don't you focus on trades that are sure with respect to price?

 

I'm a new guy doing this for less than three months now.

First, never trade your entire portfolio. Only trade what you are willing to lose, ie. 5, 10, or 25% max. Use the options portion of your portfolio to get your year end return on investment a few points above what you could get with bonds, mutual funds, and stocks. Put part of your portfolio in the spy etf and trade options on it.

I end up doing some iron condors but not as part of one trade. As the market sits around resistance, I will trade a vertical bear call credit spread and then when the market drops to around support, I trade a vertical bull put credit spread. Basically legging into an IC and it allows me to make double use of my buying power and also allows me to get the most premium for both sides of an IC. Sometimes market direction doesn't allow filling an IC if I think the market will blow through it.

I trade two accounts I'm not afraid to lose. Just opened a $2500 account in the middle of this month and made $317 in 1.5 weeks on conservative trades with low premiums with strike prices quite a ways out. Lot less stress with those. With my other account, I go for the closer strikes with dollar or better premiums but all that takes is one bad trade out of ten to knock out the other nine good trades. Not for portfolios or the feint of heart. I trade the weeklies so I don't have to worry about a trade for a month as it goes up and down touching the strike price.

Good luck. Let us know what you do.

 

Yeah, exactly. You can have a strategy with high returns, you can have a safe strategy and you can have a scalable strategy. Unfortunately, you have to select two out of these three.