Introducing Steady Condors

We intend to autotrade it in 2014 with Global Auto Trading and potentially more brokers.

We would encourage everyone to read the Steady Condors Frequently Asked Questions and the Steady Condors Strategy (members only) topics. Those two topics should provide answers to the majority of your questions, as well a detailed discussion on what the Steady Condors is all about.

What is Steady Condors?

The Steady Condors income generating strategies at their core are managed by the Greeks but mostly resemble variations of iron condors. But anyone who has traded more than a handful of traditional iron condors knows they can be extremely challenging in a trending market causing a lot of stress, large drawdowns, and significant losses. They aren't the Holy Grail (nothing is). It’s normally relatively easy to make money with high probability condors 9 or 10 months per year…But many condor traders give back most or all of their profits during the typical 2 or 3 losing months each year because they don’t know how to manage risk through their position Greeks. 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 written plan on how to manage your deltas you will eventually experience large losses. We are yet to find an exception.

The risk managed nature of the Steady Condors portfolio was designed to deal with this problem. Our average losing month has been -1.9% and we normally have around 2 losing months per year. It’s quite rare for us to have a realized or even unrealized portfolio drawdown of more than 5%. Not only do we hate losing money, but we hate being down money. Our focus in a losing month is to avoid giving back more than one month’s income. Since our monthly win rate has historically been greater than 80% this ensures our strategies have positive expectancy over the course of a full year. And when it comes down to it, profitable trading is nothing more than a numbers game.

Why is Steady Condors different?

Our manage by the greeks philosophy is designed to take advantage of the volatility skew naturally inherent 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 also means that if you were to sell a call the same distance OTM as a put you would get much less premium for your call. 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 implied volatility typically helping your short vega position. From our live experience as well as several years of backtesting this causes the upside to be a headache in condors the high majority of the time. Therefore we only use enough call credit spreads to balance our setup and we remove them completely at predetermined adjustment points in an uptrending market. We primarily make our money from selling put spreads. Needless to say this has served us well in 2013 allowing us to have a nicely profitable year while many condor traders continue to fight the relentless bull market.

Of course, we don’t know anybody who lies awake at night worrying about the market crashing up, so we need to tell you how we deal with the downside risk of a condor as well. The answer is that we also use risk reducing adjustments on the downside. If you've ever traded a condor with “rolling” adjustments you have realized that this isn't an immediate risk reducing adjustment if the market continues to fall. Rolling really only helps you at expiration. We normally don’t hold our trades into expiration week anyway so we couldn't care less about expiration. We care about managing our live PnL because that is reality...Period. Rolling works fine the majority of the time but when things get ugly (i.e. 4th quarter 2008, Aug’ 2011) you need adjustments that have some punch behind them to significantly cut your position delta, gamma, and vega. To do this we use long puts and debit spreads at trade setup and as adjustments. And we adjust early to keep ourselves from getting into a hole too deep to dig out of. This is what keeps our drawdowns and loses very small. We don’t worry about getting the “perfect” fill when the market is dropping like a rock but would instead rather give the market maker an extra nickel, dime, or quarter in order to know we've cut our risk. All of these techniques come from experience (learning from losing trades) to continually improve at our job of being "risk management specialists".

Performance

The live trading of the Steady Condors strategies started in September 2012 after being extensively backtested with intra-day pricing data going back to 2006.Results presented below are net of commissions, are on the whole account, and are non-compounded. Approximately 10-20% of the account is left in cash at all times.

Everything prior to Sep'12 is backtesting using the ONE software with live pricing on a 5 minute basis that gives you a historical risk graph and all of your options Greeks. We've found ONE to be the most realistic backtesting application available. Some slippage was also accounted for each month. When pre determined adjustment points were reached in backtesting, the planned adjustments were made without exception and with particular care to avoid knowing "what was coming next". We present backtesting to give members a general idea of what historical results may have closely resembled. It's not intended to replace live trading, but we feel it does provide value and shows us how our strategies may have held up under different market conditions, especially 2008. Without backtesting, you are essentially "winging it", and we definitely don't do that. We've spent countless hours (thousands) live trading, backtesting, and fine tuning our strategies primarily for the purpose of attaining consistent performance in our own personal trading accounts to generate monthly income.

Please note that the minimum capital required to trade the Steady Condors strategy is $20,000.