An option trader and I had an interesting conversation today about searching for the secret of making consistent returns with option trading. I absolutely agree with him about many of the things that he said.
Be Warned about the
Iron CondorMy attention was captured when he began to explain to me that, "Non-directional option trading really means that we make money in a specific direction. What makes us the money is when the direction of the underlying does not change. This is a directional trade though only it is sideways." Often it is advertised that with options we can make money in any direction, but it's important to note that this is not 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. It's just as hard to predict a sideways move as it is up or down.
Because of trading credit spreads and condors, many people have ended up losing sizeable chunks from their accounts and calling me. They repeat to me the same story... "Everything was going great for several months and then all of a sudden in one day I nearly lost my whole account." This story has been repeated to me time and time again.
For precisely this reason I choose not to trade the popular Condors or Credit Spreads. If the RUT is at your short strike and there are only a few days left from the expiration, then you are trading options the same way that most people do, and you will be left having to tell the same story to your friend or, even worse, trying to hide the truth from your wife! If you think this is funny, you won't even chuckle if this happens to you. A high stress level could also become a factor from this style of trading and really ruin your life.
To solve this problem, San Jose Options Mentoring has changed the design of Credit Spreads and Iron Condors. By using a different technique that they taught me which enables me to give more wiggle room to the underlying I was able to keep myself out of dangerous situations as well as lower my stress level. As a general rule, the less you have to adjust your condor the better off you will be.
They've also developed techniques to lock-in our profits on Condors. Most option traders exit their trades after they make a profit, but I learned how to lock-in our profits and stay in the trade a little longer.
In the end, if I ever have a Condor move against me, then I have developed a technique to keep me in the game by making adjustments and morphing into a new position! I may run into a bad month once in a while, but I'll get an excellent, free trade from it where most traders bite the bullet and move on.
Win or lose, along with the other strategies which I have developed, I will be able to trade Iron Condors impressively.
