Popular Option Strategies
The biggest difference in trading low-risk option strategies compared to the popular income strategies is that the time to recover from a debacle is very different.
For example, over the recent “computer glitch,” those who were trading iron condors as income spreads lost about 50 to 70% over that two-week period. If you think about this, it’ll take about 10 months to a year and a half for them to make back this money. Most option traders will never rebound from such a debacle.
On the other hand, those option traders who were using low-risk strategies such as broken wing butterflies, may have lost somewhere between 1% to maybe 5% max if they were doing them right. I personally had about a 2.5% drawdown over that period. So the obvious difference is that when things go bad, they really go bad for those who are trading the popular income strategies. This includes iron condors, calendar spreads, covered calls, credit spreads, and at-the-money butterfly spreads. All of the option spreads just mentioned were demolished over the recent “computer glitch.”
Those who were trading broken wing butterflies were much better off. Some Broken Wing Butterfly traders did not have any drawdown whatsoever. Those who did have drawdown were able to manage the losses so they could stay in the game. Those of us doing the low-risk strategies were fortunate enough to make back our losses over the following month. Those who were trading the popular income strategies will most likely never make their money back.
This is why I, personally, do not invest too much money in the popular income strategies any longer. For my style they are just too risky. I would much rather make money a little bit slower but never have any of the huge losses that these aggressive income traders are facing each year. To me it makes more sense to protect what I have and to take whatever the market gives me. I know that long-term my option trading plan will work much better this way.
Over the last few years I have really tweaked the popular option strategies so that I could initiate trades with lower risk. I have a different way to do iron condors that are quite a bit safer than the popular iron Condor. I have also significantly enhanced broken wing butterflies and unbalanced condors which have become some of my favorite trades overall. I really like the way I can initiate a trade with about a 2% risk, and shortly after I am in the trade, I can take off the risk nearly completely in most cases.
In other words, sometimes I actually have trades on which are basically risk free. The only way I could ever lose on some of these trades is if the market drops over 7% in one day. Still, if this happens and I lose money on my trades, then those doing your popular option spreads will be left with nothing at all. Even in the most extreme circumstances, our strategies are still much safer than anything I have ever seen before.
See it for yourself with your own personal free trial access that we offer. Enjoy.