Before I get started, I want to let everyone know that I will be holding a live webinar on iron condor trades in the next few weeks. There is no doubt iron condors have been my most successful strategy since I started the portfolio at the onset of 2017. With a win ratio of 87.5% and a return on capital of 62%, I have been more than pleased with the strategy, despite the historically low volatility in 2017. Click here to join.
There is one simple options strategy to make money in this market. It’s a strategy that beats both the bulls and the bears time and time again, and it’s called the “iron condor.”
Options traders have a huge advantage over other typical stock-only investors because they can use strategies that generate profits regardless of market direction. Simply stated, iron condors trades, when properly structured, can even absorb fairly large directional moves and still generate impressive profits.
Over the last six months we’ve made the following profits using iron condor trades:
+9.3%… on 5/2/17
+7.0%… on 5/2/17
+11.1%… on 4/3/17
+15.6%… on 3/14/17
+12.4%… on 1/30/17
+16.3%… on 1/17/17
+11.1%… on 1/6/17
And one loss of 11.5%… on 3/9/17
So what is an iron condor?
An iron condor is a non-directional options strategy that profits when the option on the underlying stock or ETF of your choice expires within your chosen range at expiration.
The basic premise of the strategy is easier to understand in the chart below. But the key part, and the real advantage of iron condor trades is this:
You choose the price range of the trade. Increasing the range will decrease your potential profits, but will increase your likelihood of success.
Let’s examine an example of a typical iron condor trade.
Here, the blue lines define how far the S&P 500 (SPY) can move up/down before the position I am interested in pursuing is in jeopardy of taking a loss. You can clearly see that this range is from $244.50 and $228.
Notice that the underlying SPY is trading for $239.07 and I would like to establish an iron condor for June expiration in 42 days
This theoretical trade looks like this:
Sell to open SPY June 244.50 calls
Buy to open SPY June 246.50 calls
Sell to open SPY June 228 puts
Sell to open SPY June 226 puts for $0.46.
How did I select this trade? …Probabilities.
Call Side of the Iron Condor:
Put Side of the Iron Condor:
I wanted to choose an iron condor trade with a probability of success around 82%, which is why I sold the 244.5 calls and 228 puts.
Probability and Iron Condor Trades
Again, it’s all about the probabilities when selling options. The higher the probability of the trade, the less premium you are able to bring in. However, I tend to side with the odds, which is why I typically choose a higher probability of success with each and every trade I make.
So, with a range of 16.5 points (244.50-228) and SPY trading for $239.07, the underlying ETF can move up to $244.50 or as low as $228 before the trade is in jeopardy of taking a loss.
In this case, the iron condor strategy will make 29.9% if it closes within the established range by June expiration in 42 days.
When the market is going nowhere fast, the iron condor strategy and iron condor trades provide safe returns that you can capture month after month.