Welcome to Steady Condors!
We are pleased to introduce an addition to Steady Options - the “Steady Condors” income strategies. Steady Condors is a systematic, rules based mean reversion strategy with an emphasis on proactive risk management. In addition to providing trades on the forum, we are offering the Steady Condors portfolio as a fully auto-traded and managed account service through TD Ameritrade Institutional.
We would encourage everyone to read the Steady Condors Frequently Asked Questions and the Steady Condors Strategy (members only) topics.
What is Steady Condors?
The Steady Condors income strategies at their core are managed by the Greeks but mostly resemble variations of iron condors. Anyone who has traded more than a handful of non-directional iron condors knows they can be extremely challenging in a trending market potentially causing a lot of stress, large drawdowns, and significant losses. They aren't the Holy Grail (no single strategy is). It’s normally relatively easy to make money with high probability condors 9 or 10 months per year when the markets are range bound…But many condor traders give back most or all of their profits during the typical 2 or 3 losing months each year when the markets do make large moves because they lack a detailed plan for risk management. Commonly heard is something like “I would have had a great year if it wasn’t for one or two months”. If you trade condors without a detailed risk management plan you will eventually experience large losses and a zero sum game. Since our trading strategies naturally have a high expected win rate our risk management objective is to avoid giving back much more than one month’s income during our losing months.
Why is Steady Condors different?
Our manage by the Greeks philosophy is designed to take advantage of the volatility skew that naturally exists in index options like RUT and SPX and to deal with the inherent flaws this creates for traditional condors. We all know that the market “takes the stairs up and the elevator down” and this is built into index options pricing. For condors this means that you will be able to sell much farther OTM puts than calls for the equivalent premium. This causes a traditional iron condor to naturally set up short Delta (bearish). If the market makes a move up after trade launch you will start to lose money immediately even with declining implied volatility typically helping your short Vega position. Therefore we normally only use enough call credit spreads to balance our setup and we start removing them at predetermined adjustment points in an uptrending market.
Of course, we don’t know anybody who lies awake at night worrying about the market crashing up so we cautiously respect the downside risk of a condor as well. If you've ever traded a condor with “rolling” adjustments you have realized that this isn't really an immediate risk reducing technique if the market continues to fall and implied volatility continues to rise. Rolling primarily helps you at expiration. We care about managing our live P/L. Rolling works fine the majority of the time but when things get ugly on the downside you need adjustments that have some punch behind them to significantly cut your risk. After all, condors are a highly leveraged strategy that demand respect because losses can become large quickly if you don't. To do this we use long puts and debit spreads at trade setup and as adjustments instead of rolling our threatened options like many others. And we adjust proactively to keep ourselves from getting into a hole too deep to dig out of. This is what has helped keep our losses small.
Steady Condors is built to trade in units of $20,000. We trade a diversified portfolio of actively managed modified iron condors. Our preferred vehicles are the cash settled index products such as RUT and SPX which receive tax favored treatment as Section 1256 contracts. Please consult your tax advisor for more information. Steady Condors is tradable in both IRA’s and margin accounts.
Our reported results are net of commissions, are on the entire account, and are non-compounded. They do not reflect any subscription, autotrade, or management fees. Actual Steady Condors trading results prior to July 2014 on the performance page reflect an original unit size of $40,000 and different risk management methodology that has since been updated to the current model. Options trading involves high potential returns along with substantial risk of loss and is not suitable for all investors. For most investors allocating anything more than 20% of your total capital to Steady Condors is not recommended.