I had an interesting conversation with an option trader today who is still searching for the secret to making consistent returns with option trading. He said many things that I absolutely agreed with.
Iron Condors Are Very Directional
One thing that got my attention was when he said “Non-directional option trading doesn’t mean we can make money in any direction. It means that we make money if the underlying doesn’t move in any direction. In other words, it’s still a directional trade, sideways.” He was right, and it’s often advertised that it’s easy to make money with options because we can make money on any direction. However, this isn’t always the case.
If you’re trading Iron Condors, you know what I am talking about; especially if you are trading the Condors that most courses and books teach. If you are trading this strategy in 2009 you probably aren’t making anything. That’s because the Iron Condor is just as directional as most option trades only that its direction is sideways. For many, it can be just as hard to predict a sideways move as it is up or down.
I’ve gotten several calls over the years from people that ended up losing large chunks of their accounts trading credit spreads and condors. It’s always the same story… “I was doing great for several months, and then all the sudden I lost nearly my whole account in one day.” I have heard this time and time again.
This is precisely why I don’t teach traditional Condors and Credit Spreads. If you’re a few days from expiration and the RUT is right at your short strike, then you are trading the way most people trade this strategy. Soon you’ll be telling the same story to your best friend and hiding the truth from your wife! You chuckle now, but you won’t think it’s funny once it happens to you. The worst part of this style of trading is the high stress level that can really ruin your life.
There Are Better Ways to Trade
To combat this problem, San Jose Options Mentoring has redesigned Iron Condors and Credit Spreads. We have a different technique which gives the underlying much more wiggle room, lowering our stress level and keeping us out of dangerous situations. Remember, in most cases, you’re better off the less you have to adjust your condor.
We’ve developed safer techniques to trade and lock-in our profits on Condors. Most option traders exit their trades after they make a profit, but we can lock-in our profits and stay in the trade.
In the end, if we ever have a Condor move against us, then we have developed a technique which gives us a free bonus trade! We may run into a bad month once in a while, but we’ll get an excellent free trade from it. Most traders simply bite the bullet and move on.
In the end, win or lose, we have developed an impressive way to trade Iron Condors along with other strategies that protect against catastrophic loss.