Keymaster

[Guest Keymaster]

I understand that all trades in the Steady Condors portfolio are based on a $10,000 account and there are 2-3 trades open at any one time.

However, when I look at the trades, I see they can be initiated with $25,000 or more risk on one of the legs (eg. your post: Is Your Iron Condor Really Protected? )

If there are 2-3 such trades open together, that is $75,000 risk on one side of a $10,000 account.

While it's true the probability is low that the max risk will be reached before there is time to adjust, nonetheless it certainly seems possible that one can wipe out an entire account trading this way.

For example, in 1987 the S&P500 dropped 20% in a single day. In 1929 there were a few daily drops of around 10% - 12%.

Am I missing a piece of the puzzle?

Thanks.

[Kim 7,423]

This trade had a different setup than the current trade. Here is the P/L chart of the current trades:



The maximum risk of the current trades is around 8-9k.

[Guest Keymaster]

Doesn't the question still remain though - even with the smaller $8,000 max loss on the above trade, if there are 2-3 trades open that's still $16,000 to $24,000 open risk on a $10,000 account where the max risk is incurred with an 8% daily move (not unheard of)?

This is a lot worse than 3x leverage on a stock portfolio because there with an 8% drop you are only losing 24% (3x8%) of your portfolio. Here, without emergency adjustments, an 8% drop will wipe out the entire portfolio.

It seems to me that if one wanted to trade SteadyCondors, one must either be glued every minute to the order execution screen to be able to react immediately to crashes with the appropriate adjustments, or if not, one must make these SteadyCondors a very tiny part of a larger portfolio.

Am I misunderstanding?

(btw - am not meaning to criticize just trying to understand which of your portfolios to get involved with - I think your site is tops, your analysis is crystal clear, and your approach in general is very sound. Plus it's great that you respond to everyone's posts !!).

 

 

[Kim 7,423]

I would recommend reading the Welcome to Steady Condors post if you are really interested in the strategy.
 

Quote

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. We will usually have 2-3 trades per month plus 2-4 adjustments, with average allocation of 80-85% and 15-20% of the account in cash.

So no, it is definitely not worse than 3x leverage, and no, you definitely don't need to be glued to the computer.