Welcome to Steady Condors!
We are pleased to introduce an addition to Steady Options. Steady Condors is a rules based non-directional strategy with an emphasis on robust risk management. It requires much less maintenance than our SteadyOptions strategy and can be traded in large accounts.
We would encourage everyone to read the Steady Condors Frequently Asked Questions and the Steady Condors Strategy (members only) topics.
What is Steady Condors?
Steady Condors at its core is managed by the Greeks but mostly resembles a variation 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 usual 2 or 3 losing months each year when the markets do make large moves because they lack a detailed plan for risk management.
“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. Since our trading strategies naturally have a high expected monthly win rate our risk management objective is to avoid giving back much more than one month’s average earnings 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. 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 drawdowns reasonable relative to realized and expected returns.
Another thing we do differently from many other services is the timing of our trades. We open our trades early and close them early. We would typically open the trades 6-8 weeks before expiration and close them 2-3 weeks before expiration, in order to reduce the negative gamma risk. We recommend reading the Why You Should Not Ignore Negative Gamma article to understand the gamma risk.
Steady Condors is built to trade in units of $20,000. 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 can be traded in both IRA’s and margin accounts. Trading the most liquid vehicles like RUT and SPX also means no liquidity issues and no upper limits for allocated capital. As usual, we still don't recommend allocating majority of your portfolio to any single strategy, especially for large accounts.
Our reported results are net of commissions, are on the entire account, and non-compounded. Subscription costs are not included. Most other services report returns as average of all monthly trades, and don't include reserve cash. Our returns always take into account reserve cash (typically 20-25% of the amount being traded). This is the only correct way to report performance because this is what your account actually shows at the end of the year. When comparing our results to other services, please remember that our ROI (Return On Investment) is much higher than the portfolio return due to the reserve cash.
The following table presents a combination of backtested and actual results based on our current model of a $20k unit. Live trading started in September 2012 as reflected on the performance page.
The following chart represents the non-compounded P/L on a $20k account along with a historical drawdown profile.
The performance results shown are based on a combination of back-tested returns for a hypothetical model account and actual results. These results were achieved by a retroactive application of a model designed with the benefit of hindsight and actual results may have differed. There is no assurance that Steady Condors would have achieved these returns and the back-tested returns are shown for illustrative and informational purposes only and should not be construed as an indicator of future performance of the strategy. Back-tested returns do not represent actual trading and may not reflect the impact that material economic and market factors might have had on any decision-making if the portfolio were actually being managed. Options trading involves high potential returns along with substantial risk of loss and is not suitable for all investors. Do not trade options strategies beyond your experience level or with money you can't afford to potentially lose.