SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Exiting An Iron Condor Trade


One of the more difficult aspects of options trading is knowing when to take a profit. No one likes to ‘leave money on the table.’ However, I also hope that no one likes to lose thousand of dollars trying to earn another $50 to $100. There is a compromise somewhere.

Question:

"I currently have a RUT Sept IC [iron condor] paper trade that I opened on Aug 27 for a credit of $1.90. This morning the position had a profit of $1.20 and would cost $0.70 to close."

 

If you can watch a position during the day would you advise locking in a profit at a certain point in a situation like this?

 

I cover early. That’s my comfort zone, and you must find your own. However, even that is insufficient. How early to cover and how much to pay remain the unanswered questions. The best place to discover the answers is in the original trade plan. When you have such a plan, it is easy to follow. Sure you can modify it as needed, but the plan gives you a general guideline for making decisions.

 

For example, if your plan was to earn $1.50, then I would say that earning $1.20 is acceptable ONLY when the current position makes you uncomfortable. If you have doubts, then quitting earlier than anticipated makes sense.

 

Lacking a trade plan, I believe:

  • How much you collected originally is immaterial.
  • How much profit you have is immaterial

 

All that matters is this:

 

You can cover this position by paying $0.70. Do you want to take the risk of holding this position when your potential is all, or part, of $0.70? Are the options far enough OTM that you are comfortable when holding? Or would you be holding just because you cannot bear the thought of paying ‘so much’ to close?

 

Would open this iron condor as a new position for $0.70. If ‘yes’ then do not close. If ‘no’ then you have a decision to make.

 

 

ironcondor_alt727x285.jpg

 

Is it too risky to hold? I cannot possibly know the answer. It’s a personal decision.

 

If you do hold, what is the target? If it is another 5 cents, get than $0.65 cent bid in now. There is no reason to risk losing the whole profit to earn another $0.05.

 

I offer this advice: Don’t allow the actual result to sway you. If you decide to hold, and this time that turns out to be a losing decision, don’t conclude that you should close early next time.

 

If you close early and the position goes out worthless, that does not mean you should hold next time.

 

Trading is about RISK and REWARD. Not how much you coulda, woulda, shoulda earned.

Also, your decision on holding/closing should influence your decision. But that becomes part of the trade plan.

 

You are in the learning phase of your options trading career. You are gaining experience. Education is an ongoing process, and requires time. Before you risk real money, you must (IMHO) understand the strategy you are using and have some basis for believing you are capable of managing the risk of your investment, should the market move against you.

 

You are still paper trading. So trade. Manage risk. Keep a daily diary of how you ‘feel’ about your positions: Are you comfortable? Are you concerned about volatile markets or pending losses? Are you confident (overconfidence is a killer)? Are you anxious to lock in profits or do you prefer to try to collect the last penny from a trade? Put your thoughts into writing.

 

Keep a trade plan for every trade. Be conscious of position size and have a good reason for increasing or decreasing size. As time passes, keep a record of how well you like the plan or whether you feel the plan did not serve its intended purpose.

 

Answering these questions – in your diary – is important. Your own commentary will lead you down a path that is good for you. And you can modify your comfort zone as the years go by.

 

It takes time to find a strategy that you can handle effectively. But, no strategy is always ‘right.’ Times change and markets change. Be prepared to change your trading habits.

 

Take your time. If you develop good habits now, those habits will last a lifetime. If you go broke now, you may give up trading options. I cannot tell you what will work for you – but you will figure it out as you go along.

 

  • The primary goal is to survive. That means protecting your assets.
  • The secondary goal is to make money.
  • The tertiary goal is to build wealth.
  • The fourth rule is to never forget your primary goal.

Concentrate on getting experience with iron condors, finding your comfort zone, and protecting your assets. That is what is important.

 

Mark Wolfinger has been in the options business since 1977, when he began his career as a floor trader at the Chicago Board Options Exchange (CBOE). Since leaving the Exchange, Mark has been giving trading seminars as well as providing individual mentoring via telephone, email and his premium Options For Rookies blog. Mark has published four books about options. His Options For Rookies book is a classic primer and a must read for every options trader. Mark holds a BS from Brooklyn College and a PhD in chemistry from Northwestern University.

 

Related articles:

 

Want to learn more?

 

Start Your Free Trial

 

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • Options on Options

    Traders have long known that options can be opened on many different securities. Among the most ingenious of these are options on options. There are four types of these: call on a call (CoC), a call on a put (CoP), a put on a call (PoC), and a put on a put (PoP).

    By Michael C. Thomsett,

    • 0 comments
    • 112 views
  • The Wheel Trade

    The “wheel” trade is variously described as a beginner’s strategy, a combination to exploit features of both calls and puts, and as “perfect” solution to the well-known risks of shorting calls, even when covered. The wheel could be defined as any of these, but a larger question should be: Is the wheel an elegant method for making profits consistently, or just a gimmick?

    By Michael C. Thomsett,

    • 0 comments
    • 424 views
  • Chooser Options

    Most options traders see their world as a choice between calls or puts, alone or in various combinations. But there is more. With a chooser option, traders can open a position and decide later whether it will be a call or a put. This is also called an as you like it option.

    By Michael C. Thomsett,

    • 0 comments
    • 369 views
  • Leveraged Anchor 2020 Year In Review

    Steady Options has now been trading the Leveraged Anchor strategy for two years, and, somewhat to my surprise, 2020 went even better than 2019. On the year, Leveraged Anchor was up 31.7%, while the total return of the S&P 500 was 18.4%.

    By cwelsh,

    • 2 comments
    • 1,119 views
  • Ratchet Options

    The “ratchet option” is so-called because as a series, each successive position activates when the previous option has expired. The trader ratchets up (or down) to the next position. Each one is set up to be as close to the money as possible. It has many names, including cliquet, moving strike, ladder, lock-in, or reset option.

    By Michael C. Thomsett,

    • 0 comments
    • 391 views
  • Steady Momentum 2020 Year in Review

    Steady Momentum Put Write (SMPW) is one of the available subscription services at Steady Options. We launched the strategy in early 2019, so we now have two years of performance to evaluate on both an absolute basis and relative to the strategy’s benchmark, PUTW (WisdomTree CBOE S&P 500 PutWrite Strategy Fund). 

    By Jesse,

    • 0 comments
    • 374 views
  • SteadyOptions 2020 Year In Review

    2020 marks our 9th year as a public trading service. It was an excellent year for us. We closed 130 winners out of 194 trades. Our model portfolio produced 117.1% compounded gain on the whole account based on 10% allocation per trade. We had only three losing months in 2020. 

    By Kim,

    • 0 comments
    • 657 views
  • The Jump-Diffusion Pricing Formula

    One of the more complex areas of options analysis involves pricing formulas. The best known among these is the Black Scholes Model (BSM). This is a widely cited method for attempting to determine what the option’s premium should be, but it is deeply flawed.

    By Michael C. Thomsett,

    • 0 comments
    • 416 views
  • Ranges of Exotic Options

    The standard call and put are well known to all option traders, but many exotic and more advanced options can also be opened. Whether a specific broker allows trading in these, and whether a trader has the necessary trading level, are questions to be addressed. This article just defines many of the exotic options that are possible.

    By Michael C. Thomsett,

    • 0 comments
    • 502 views
  • What To Do Before Committing To Trading

    Trading cryptocurrency has become a very popular and significant part of life. While it’s not for everyone, it’s certainly for an awful lot of people. There’s money to be made and areas to be invested in, and people will do what they can to make either a quick buck or an amazing figure.

    By Kim,

    • 0 comments
    • 656 views

  Report Article

We want to hear from you!


There are no comments to display.



Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs Expertido