{"id":13657,"date":"2011-08-03T10:19:20","date_gmt":"2011-08-03T14:19:20","guid":{"rendered":"http:\/\/www.smbtraining.com\/blog\/?p=13657"},"modified":"2023-04-18T16:17:13","modified_gmt":"2023-04-18T20:17:13","slug":"you-might-not-be-so-good-at-dodging-bullets-the-second-time-around-2","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/you-might-not-be-so-good-at-dodging-bullets-the-second-time-around-2","title":{"rendered":"You might not be so good at dodging bullets the second time around"},"content":{"rendered":"

In our options training program, we spend a good deal of time working on high probability iron condor strategies. A high probability iron condor is one of the simplest and most popular options strategies, but it also, in my opinion, is one of\u00a0 the most dangerous.<\/p>\n

As with most dangerous strategies,\u00a0 it is a deceptively attractive and simple trade.\u00a0 An iron condor is composed of a put credit spread, very far out of the money and a call credit spread, also very far out of the money. Statistically, the chances of the options spread trader pocketing the full credit he receives at the outset of the trade is over 80% if he simply allows the condor to expire after initially selling it.\u00a0 And if started\u00a0 6-10 weeks out from expiration, the credit can constitute, easily 14-19% of the capital exposed. Not bad– an 80% chance of pocketing a\u00a0 14-19% return each month.\u00a0 Right?<\/p>\n

Wrong.<\/p>\n

Here’s the problem– to allow a high probability condor trade to get even\u00a0 near<\/em> the short strike on either side of the trade\u00a0 is foolish and potentially catastrophic. The most aggressive, risky, high probability condor adjustment technique that I know\u00a0 involves rolling the credit spreads out of danger\u00a0 when there is still a 70% chance that the short strike on that side of the trade will expire worthless. The problem is that as the market approaches the short strike, its value starts to exponentially increase.\u00a0 Before you know it the position is down multiples of an average monthly profit.<\/p>\n

Of course we teach adjustment techniques to deal with these dangers and the high probability condor can be a very profitable strategy. There are many very solid veteran options traders who make a living trading them exclusively. But it is a strategy that is to be respected and handled very carefully.<\/p>\n

In our training course we talk about the “perfect” high probability iron condor month. That’s when the market shoots off in one direction, allowing you to\u00a0 close\u00a0 the credit spread of the opposite direction, and then reverses, allowing you to close the remaining credit spread. This happens maybe one third of the time during a typical trading year. The rest of the months you need to do some\u00a0 work to make the trade\u00a0 profitable.<\/p>\n

I’m often asked\u00a0 the following question by the satisfied condor trader, after he or she has closed a month early having “scalped” both credit spreads:\u00a0 Should I re-establish a new condor\u00a0 for the same month?<\/p>\n

My answer is almost always an emphatic: NO. Why push your luck? To me that is the equivalent of\u00a0 asking:\u00a0 “Hey, I just ran across a battlefield\u00a0 and avoided getting shot.\u00a0 Should I take another run across the same battlefield? After all,\u00a0 I seem to be pretty good at avoiding bullets.”<\/p>\n

If the market gives you the perfect condor month, accept the gift and allow your capital allocated to that trade\u00a0 to lie dormant until the next month’s\u00a0 condor trade is ready to be initiated. After all, you made a phenomenal return on that capital–give it a break.\u00a0 I don’t think it’s a good idea to expose that same capital, closer to expiration, with closer strikes and probably less income, to a very\u00a0 imperfect <\/strong>condor month, which could cost you all of your gain from the “gift” and then some.<\/p>\n

Seth Freudberg<\/p>\n

Director, SMB Options Training Program<\/p>\n

The SMB Options Training Program<\/a> is a twelve month program designed for novice and intermediate level options traders who are seeking an intensive training process to learn how to trade options spreads for monthly income. For more information on this program contact Seth Freudberg:\u00a0\u00a0 sfreudberg@smbcap.com<\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

In our options training program, we spend a good deal of time working on high probability iron condor strategies. A high probability iron condor is one of the simplest and most popular options strategies, but it also, in my opinion, is one of\u00a0 the most dangerous. As with most dangerous strategies,\u00a0 it is a deceptively attractive and simple trade.\u00a0 An … Read More<\/a><\/p>\n","protected":false},"author":741,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-13657","post","type-post","status-publish","format-standard","hentry","category-general-comments-2","no-post-thumbnail"],"yoast_head":"\nYou might not be so good at dodging bullets the second time around | SMB Training<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.smbtraining.com\/blog\/you-might-not-be-so-good-at-dodging-bullets-the-second-time-around-2\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"You might not be so good at dodging bullets the second time around | SMB Training\" \/>\n<meta property=\"og:description\" content=\"In our options training program, we spend a good deal of time working on high probability iron condor strategies. A high probability iron condor is one of the simplest and most popular options strategies, but it also, in my opinion, is one of\u00a0 the most dangerous. As with most dangerous strategies,\u00a0 it is a deceptively attractive and simple trade.\u00a0 An ... 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