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Found 12 results

  1. Introduction The Iron Condor is a combination of a bull put spread and a bear call spread. The basic construction is: Sell 1 OTM Put Buy 1 OTM Put (Lower Strike) Sell 1 OTM Call Buy 1 OTM Call (Higher Strike) All options expire at the same month. The distance is usually the same between the short and the long legs of the calls and the puts. A typical P/L chart looks like this: Iron Condor is theta positive gamma negative and vega negative strategy. That means that it benefit from time decay, but suffers if the underlying moves too much and/or Implied Volatility increases. One approach that can maximize credit received and the profit range of the iron condor, is to leg into the position. "Legging in" refers to creating the put spread and the call spread at times that when market makers are inflating the prices of either the sold call or put. However, most experts agree that this approach hardly justifies the risk. Trading Parameters So before you start trading IC, there are two most important things you need to decide about: How far in time you go. How far OTM to go. The time can vary between one week and three months. Those are the extremes, most people go for 3-10 weeks. Going with close expiration will give you larger theta per day. So you might earn 5% in one week or 10% in month or 15% in two months. Obviously 5% every week is better than 10% every month. But there is a catch. Less time to expiration equals larger negative gamma. That means that a sharp move of the underlying will cause much larger loss. If the underlying doesn't move, then theta will kick off and you will just earn make money with every passing day. But if it does move, the loss will become very large very quickly. Another disadvantage of close expiration is that in order to get decent credit, you will have to choose strikes much closer to the underlying. Based on my experience and personal preference, I like to open the IC trade 6-8 weeks before expiration. It works for me, it doesn't necessarily mean it will work the best for you. In any case, the absolute minimum time that I would recommend is 3-4 weeks. Another advantage of going further out in time and getting decent credit is the fact that you can close the trade early and remove the risk. I never hold till expiration, trying to close around 10-14 days before expiration. When only 20-25 cents is left, it's not worth the risk to continue holding. You kept most of the credit, leave the last few cents to someone else. This brings us to the choice of strikes. The delta of the options gives you an approximate estimate of the probability to expire ITM. If you open IC with short calls and puts having delta of 15, that means that the trade has probability of ~70% to end between the strikes. There is always a trade-off between risk/reward and probability of success. The better the risk/reward, the lower probability of success. Profit/Loss and Exit strategies One of the more difficult aspects of options trading is knowing when to take a profit. The profit on IC is calculated as return on margin. Margin on iron condors is the difference between the strikes. For example, if you trade 2100/2110 call spread, the margin will be $1,000. The capital requirement is the margin less the credit. In case you got $200 credit, the capital requirement is $800. So if you sell the IC for 2.00 credit and closed it for 1.00 debit, the gain is 100/800=12.5% I usually manage the put and the call credit spreads separably. I will place a GTC order to close the spreads at 0.25 debit each, which is around 20-25% of the credit received. The last 25 cents are not worth the risk. As a rule of thumb, you should aim to limit the losses to 1.5 times the average monthly earnings. For example, if your average monthly return is 10%, you should aim to lose no more than 15% in losing months. There is no point to make 8-10% for few months and lose 50% in one month. Typical issues with Iron Condors “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. There are few serious issues with "traditional" iron condors: 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. Markets tend to rise over time, so most of the cycles you are fighting the Iron Condor on up moves. “Rolling” adjustments isn't really an immediate risk reducing technique if the market continues to fall and implied volatility continues to rise. As you move from the center of an Iron Condor, gamma kicks in and makes the T+0 curve “bend” and change relatively quickly so you tend to adjust fairly soon. How to address those issues? To address the issues with "traditional" iron condors, we developed a very unique version of the iron condor strategy. We call it Steady Condors. Steady Condors is a market neutral, income generating, manage by the Greeks strategy. Here are the highlights: For downside protection, we use long puts and debit spreads at trade setup and as adjustments instead of rolling our threatened options. This helps reduce the Vega and Gamma so as price moves down and volatility moves up. To flatten the T+0 curve on the up side, we sell fewer call credit spreads. We normally only use enough call credit spreads to balance our setup. This limits upside risk from the beginning of the trade and it’s easy to manage. If the market is moving up, we take the calls off at predefined adjustment points.It doesn’t hurt the profit potential too much and also eliminates the upside risk. 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. Those steps help to keep the drawdowns reasonable relative to realized and expected returns. This is a typical P/L chart of our Steady Condors setup: You can see the relatively flat T+0 line and limited upside risk. To get an idea how this strategy would perform in a down market, we presented a case study from August 2011 cycle. The trade began on July 6, 2011 with RUT at 844. On Aug 4 with RUT at 752 the trade was taken off for target profit of 5%. Frankly I'm not familiar with another variation of Iron Condor that can actually make a gain after the index declines by 11%+. Conclusion Steady Condors is a strategy that maximizes returns in a sideways market and can therefore add diversification to more traditional portfolios. Selling options and iron condors can add value to your portfolio. The strategy produced 46.7% non compounded return in 2015 (56.5% compounded return) and 17.8% CAGR (Compounded Annual Growth Rate) since inception, with 14.6% annual volatility, resulting 1.27 Sharpe Ratio. Our reported results are net of commissions and are on the entire account. Does it mean you should stop trading "traditional" iron condors? Not at all. They should still work well - as long as you implement prudent risk management. Steady Condors just provides you a viable alternative and addresses some of the issues traders face when trading this strategy. Related Articles: Trading An Iron Condor: The Basics Why Iron Condors are NOT an ATM machineWhy You Should Not Ignore Negative Gamma Trade Size: Taming The 800-Pound GorillaCan you double your account every six months?Can you really make 10% per month with Iron Condors? Should You Leg Into Iron Condor? Exiting An Iron Condor Trade Iron Condor Adjustments: How And When Iron Condor Adjustment: Can I "Roll" It Forever? Is Your Iron Condor Really Protected? Want to join our winning team? Start Your Free Trial
  2. Is Your Iron Condor Really Protected?

    Why Steady Condors is different? Can you make 10% per month with Iron Condors? Yes, you can - but this is a wrong question to ask. The right question is how much you lose when the market goes against you? 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. 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. August 2011 Case Study We certainly saw plenty of upside in the recent years. But as we all know, the market tends to take the stairs up and the elevator down. Steady Condors is short Vega, and I thought it would be a good example to show the backtested example of the Steady Condors trade during the August 2011 correction/crash. The trade began like normal on July 6, 2011. 44 DTE. Note that RUT was at 844. No adjustments were necessary until 8 days into the trade when RUT was at 832. Interesting though was RUT had first moved up to nearly 860 before starting its descent. The short leg of the put debit spread was rolled down 20 points. Business as usual. On July 18, 32 DTE and 12 DIT, another debit spread was added (one other had also been added a few days prior) and the call credit spreads were taken off for 20 cents. RUT at 816, down about 1 standard deviation since entering the trade. Being down 1 standard deviation in 12 days isn't necessarily concerning, but RUT has declined over 40 points from it's high. PnL is in good shape, up about 1%. On July 27, 21 DIT, RUT is at 806 and another debit spread is added (rolling down the 800 short to 780). At this point the move down is still reasonable (around 1 standard deviation after 21 days). PnL is in good shape up about 2% at this point. The debit spread adjustments are causing the trade to look more like a bearish butterfly than a condor. No additional long puts have been necessary yet at this point. Skipping ahead to Aug 2, 27 DIT and 17 DTE, RUT is now at 783. A few more debit spreads have been added at this point. The idea is to simply keep managing position delta as RUT moves further down. PnL is in great shape, closing in on target profit, up close to 4%. In situations like this I will consider going for more profit because it's possible to make significantly higher returns when the trade finishes under the "wing". One or two months per year we can usually get 5%+ out of the MIC. Later in the day on Aug 2 position delta reached the adjustment target again so at this point a long put was added. Rational for the long put (compared to yet another debit spread) was as follows...1. There is more than enough potential profit and theta in the trade 2. This was the second adjustment in the same day with the daily move over 1.5 SD 3. RUT has moved down 66 points since trade launch and 82 points since the high. 4. The short leg of the put credit spreads are now carrying a delta of 30 increasing the short gamma of the position. One day later on Aug 3 another long put was needed. It would certainly be reasonable to take profits at this point, the key is to keep the t+0 line as flat as possible while maintaining as much theta as possible. Note how flat the t+0 line is, and also how it curves up if a serious crash would occur. Translation: minimal fear of additional downside. One day later on Aug 4 with RUT at 752 the trade was taken off for target profit of 5% and because RUT touched the short put strike, and theta was now negative. IV had increased 56% in the 29 DIT and the total move represented over 2 standard deviations. Max margin at the beginning of the trade was just over $26,000, and by the end of the trade margin was down to less than $17,000. Just to show the power of risk management, the next picture is the original trade with no adjustments. Although the setup is important, it's the adjustments that make the difference. Without them, the trade would have been down 22% at the point it was taken off for target profit. One last interesting point...On Monday Aug 8 RUT closed down 64 points at 650. If you wouldn't have taken the trade off on the 4th the trade would actually have been up 67% at the end of the day on the 8th. Frankly I'm not familiar with another variation of Iron Condor that can actually make a gain after the index declines by 11%+. Note: our current setup is slightly different, but the general principle is very similar. Related articles: Steady Condors 2015 Report: 46.7% Return Should You Leg Into Iron Condor? Exiting An Iron Condor Trade Iron Condor Adjustments: How And When Iron Condor Adjustment: Can I "Roll" It Forever? Why Iron Condors Are NOT An ATM Machine Can You Really Make 10% Per Month With Iron Condors? Is Your Iron Condor Really Protected? Want to learn more? Start Your Free Trial
  3. It Is Time to Get Real

    2012 and 2013 were in line with our long term profit target of 2-3% per month, but 2014 was a very difficult year for most condor traders. We know many services that actually blew out their clients accounts, but Steady Condors at least was able to limit the losses to reasonable amount, which allowed us to recover from the drawdown within the next 6 months. 2015 was obviously very good, producing 56.5% compounded yearly return. 2014 is the main reason why we are below the long term average. Statistically this not unexpected considering it is only 4 years of data. But Jesse provided a much better explanation: This has been on the FAQ page for quite a long time: How much can I expect to make with your service? Our objective is to make a living, not a killing. We like the story of the tortoise and the hare. Income trading is NOT an ATM machine, regardless of what other option based services are marketing to you. It’s hard and it takes discipline, experience, and a well thought out written plan on how to manage risk. We believe markets aren't perfectly efficient, but they are a lot harder to beat over the long term than most people realize. Our long term goal is to make an average of 15-25% annually on the whole account after trading costs (commissions and slippage). Options inherently provide leverage and substantial risk of loss when not used properly, and iron condors are no exception. Many people mistakenly confuse the high probability of success (per trade) that iron condors offer with safety. Return data is useless without also analyzing risk. I expect SC to have a long-term Sharpe Ratio up to 1 (depending on future risk-free rate which is currently almost zero). Recognizing that this is a topic most people have never been educated on, let me explain. This will help you understand how to more properly analyze returns of different strategies that have different leverage and therefore different risk. A huge mistake that I see retail investors make over an over is only looking at returns. The Sharpe Ratio isn't perfect either, but it's certainly better than only reviewing returns and can give you a way to throw a giant red challenge flag on anyone claiming extraordinary returns. Sharpe Ratio: Annualized return - risk free rate / annualized volatility All you need is a track record of monthly returns to calculate a strategy's Sharpe Ratio. For your reference, 1 is exceptional, and you'll be hard pressed to find hardly any audited track records of any type that have maintained a Sharpe of 1 over a long period of time (10+ years). Yet people are desperate to believe in fairy tales and hope that they've found magic. If a newsletter is honest with you and tells you to "get real", many retail investors will just move on to the next one who will tell them whatever they want to hear in order to gain subscriptions. We'll tell you to get real here. And if you ever feel like we aren't, throw the challenge flag at us. It's why we have forums in order to have discussions. Steady Condors has had a Sharpe Ratio of about 1.3 since 2012 which is above long-term expectations. This is based on 19.8% CAGR (Compound Annual Growth Rate) and 14.6% annual volatility. With the expectations that Steady Condors will produce annualized volatility of around 20% over the long term, this would also land expected returns around 20%. Beware of anything that suggests a massive Sharpe ratio such as 3+ over a long period of time. That would basically qualify them for market wizard status that virtually nobody has achieved for the long-term. Often times you'll find this in a credit spread newsletter where the big loss just hasn't happened yet (it will), or the entire track record is hypothetical, which likely includes overfitting and/or excludes realistic transaction costs. Short volatility strategies like selling options with no risk management can sometimes go for a few years without being tested. Do yourself a favor next time you're looking at a track record and analyze both risk and return, and using the Sharpe Ratio is a great start and a way to possibly save yourself a lot of money. Thank you Jesse for providing such great explanation! At Steady Options, we are committed to promoting long term success to our members which starts with education on having realistic expectations. We will continue telling people to "get real" and not what they want to hear because this is who we are. On a related note, we are one of the few services that report performance on the whole account, not P/L on margin. For example, if we keep 20% of the account in cash and make $400 on $8,000 margin, we would report it as 4% return on $10,000 account. Most services would report it as 5% return. in the long term, it makes HUGE difference. We also include commissions in our reporting, which reduces the numbers by another ~0.3%/month. Always make sure to check how the service reports returns and compare apples to apples. Let me know if you have any questions. Want to learn more? Start Your Free Trial Related Articles:Why Retail Investors Lose Money In The Stock MarketAre You Ready For The Learning Curve?How to Calculate ROI in Options TradingPerformance Reporting: The Myths and The RealityAre You EMOTIONALLY Ready To Lose?
  4. Steady Condors first goal is to manage risk and to prevent big losses. Nice recovery! "Another nice month for those who have hung in there with Steady Condors. Good job, Kim, and to those of you who are sticking with it. And a good opportunity to share some things about the limitations of a relatively small sample size of live trading and backtesting... A lot of people bailed on Steady Condors last year because of a drawdown and losing year. Think about it this way: What if the only data you had access to on the S&P was since 2009? You'd have returns of 26%, 15%, 2%, 16%, 32%, and 14% (rounded). That would obviously be a very misleading sample to draw conclusions from. The disclaimer of "past performance does not guarantee future results" is not just a legal requirement, but a true statement. Past performance does matter, but it's NOT the limitations of what is possible. I posted this on the LCD forum last week from Ben Graham: "The essence of investment management is the management of risk, not the management of returns." You can't control returns, only manage risk I really dislike when people make trading sound like if you are really good at it you somehow have control over your returns. The only thing you can do is build a winning strategy (better yet, multiple winning strategies with low correlation) and then manage your risk and position size so that you stay in the game long enough to let your edge work out over the long term. But a lot of people will make ridiculous claims in order to sell a product with no accountability to a regulatory body like I have to deal with as an investment advisor. And you must have realistic expectations and a proper mindset which I believe is: Selling options and iron condors can be a very good strategy when the risk management is robust. With most of the services out there it's not, and if their track record doesn't have a big loss in it, it probably just hasn't happened yet. Selling OTM options and then rolling losses forward is incredibly misleading to the uninformed. No different than the S&P example above to where if we extended the sample size by one year to 2008 you add in the second worst year in history where many people locked in devastating losses to their portfolio because they never considered it possible for markets to go down that far and fear took over. Those unaware of history are doomed to repeat it. It will happen again, we just don't know when. The S&P has experienced two 50%+ drawdowns since 2000 and a max drawdown of over 80%. Selling options and iron condors can add value and diversification to your portfolio. They aren't the holy grail. Just like everything else. Your maximum drawdown is ahead of you, not behind you. We do have a limited sample size with Steady Condors, that's obviously why I brought up the S&P example. The reality is that backtesting complex options strategies is a LOT of work and sufficient option data just really doesn't exist for us to go back much farther than what we have displayed. Many drew too many conclusions about the future of steady condors based on limited past data. Again, have realistic expectations." There is a lot of wisdom in Jesse's post. And now I would like to explain how Steady Condors performance reporting is different from most other services. We report returns on the whole portfolio including commissions What does it mean? When you trade Iron Condor (or any other options strategy), you NEVER can allocate 100% of the account to the trades. You always need to leave some cash reserve in case you need to adjust. This cash reserve usually varies from 15% to 30%. Lets assume cash reserve of 20% and see how we would report the performance. Our 20k unit has two trades each month (RUT and SPX). With 20% cash, we allocate ~$8,000 per trade. If both trade made 5%, that means $400 per trade or $800 total for the two trades. In our track record, you will see 800/20,000=4%. Other services will report it as 5% (average of the two trades). In addition, our returns will always include commissions. If you see 5% return in the track record, that means that $100,000 account grew to $105,000. Plain and simple. To see how this method can have dramatic impact on the performance, let's examine a hypothetical service that claims to make 10%/month and have up to 3 trades. With 3 trades, it is reasonable to allocate 25% per trade and leave 25% in cash. If all 3 trades made 10%, they would report 10% return (average of all trades). However, the return on the whole portfolio is 7.5%, not 10%. That's before commissions, which might take another 1-1.5% from the total return. If they have only 2 trades, and both made 10%, they would still report 10%, while a real return is 5% (half), and even less after commissions. There are months where they might have only 1 trade, but if that trade made 10%, they would still report 10%, although the real return was 2.5%. Another point worth mentioning is rolling. If you look at some services, you might see few last months of data missing. That would usually mean that the trades were losing money and have been rolled for few months, to hide losses. In some cases, the unrealized losses can reach 25-50%. You will never see those losses in their track record. It is very important to know how returns are reported, in order to make a real comparison. Always make sure to compare apples to apples. Related Articles:Can you double your account every six months?Can you really make 10% per month with Iron Condors? Should You Leg Into Iron Condor?Exiting An Iron Condor TradeIron Condor Adjustments: How And WhenIron Condor Adjustment: Can I "Roll" It Forever?Is Your Iron Condor Really Protected? Click here to read how Steady Condors is different from "traditional" Iron Condors.
  5. The first change is reducing the unit size from $40,000 to $20,000. That means that the minimum account size to trade Steady Condors is now $20,000 or less. We are reducing the size of the MIC trade from ~30k to 10k and the size of the NTC trade from 5k to 2.5k. Since the NTC trades can overlap, we will utilize 15k out of a 20k unit. For autotrade and managed accounts, the remaining capital will be allocated to high probability options trades based on the Calendar Effects model we use inside the Long/Short Strategy. This change will not only allow members with smaller accounts to participate, but will also make compounding easier. The second change is the modified set of rules for the MIC trade. The MIC has struggled in 2014 with the current guidelines because of the increased volatility in the Russell 2000 (RUT). In order to adapt to a changing market environment and to reduce the number of adjustments needed we have put together a custom set of rules to maintain the unique qualities that make the MIC so attractive while loosening the leash enough to let the probabilities of a high probability condor work to our advantage. The exact rules are discussed on the Steady Condors forum, but we can report that backtesting shows excellent results under most market conditions. Over the last 42 trades the average P/L was well over 3% per month with 34 wins (81%). The worst loss occurred in August of 2011 (-7.11%) when the Russell 2000 dropped over 20% in less than 3 weeks. With these new adjustment guidelines YTD performance in the MIC would be improved by over 30% with one small loss of under 2% while only needing a total of 2 adjustments for the year. The new guidelines also cause less average days in trade putting your capital at risk a smaller percentage of the time. We are very excited about those changes and invite you to try the service. Start Your Free Trial
  6. 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.
  7. Steady Condors 2013 - Year in Review

    Non directional income trading wasn't designed for relentless trends like 2013 provided and many of our competing services set record drawdowns. Our worst drawdown in 2013 was less than 3%, and our year end performance was 29.4%. We report performance net of commissions, on the whole account, and non-compounded. If you would have begun with a $40,000 account you would have ended with $51,760. Please be sure to read the final comments of the Steady Condors introduction to understand our transparency in reporting performance compared to other services. Many traders and investors are continually in hot pursuit of the next “holy grail” strategy looking at nothing other than past returns and often forgetting about what is equally important at the end of the day…that nasty four letter word we all have to deal with in the financial markets…RISK. The primary focus of Steady Condors is risk management, whereas we find many of our competing services make attempts to predict the market with their credit spread and condor trades. Nobody knows where the market is going, so stop caring about what it will do next. Focus on executing your plan (that means you have to have one!), and ignore all the noise. Most months in 2013 we were required to make several adjustments to keep our deltas under control as the markets continued to march higher, but this risk management is what allowed us to still produce a nice profit for the year with minimal stress while many other condor traders relying on "technical resistance levels" were wondering/hoping that "it can't go any higher, can it?" Make no mistake, iron condors can be brutal on the upside as well as the downside as many learned in 2013. When comparing Steady Condors to other services or strategies, don’t forget to consider both historical performance AND historical drawdowns in both up and down markets. The plan for 2014 It’s pretty simple, but requires discipline…Follow our trade plan one day and one month at a time. That will never change; the best traders are normally fanatics about this. Some years will be better than others but if you stop focusing on the result of each individual trade and define success on an annual (or longer) basis we are confident you will be very satisfied with our service. “Keep your rules rigid, and your expectations flexible.” We are NOT saying replace all your other investments and load the boat with Steady Condors, but instead consider how adding a risk managed and market neutral income generating strategy like Steady Condors could benefit a portion of your portfolio. We are very excited to see what 2014 brings, best wishes and good trading to all! Start Your Free Trial
  8. Steady Condors: The Comeback

    It's official now: Steady Condors has completely erased last year's losses and drawdown. Risk management, as always, is what made the difference. Even though last year was difficult with Steady Condors, risk management still made a difference and kept you in the game to trade another day. To be sure, "managing risk" in the market has not paid off in 2014 and 2015 as each and every dip has been followed by a spirited "V bottom." This is why we have been whipsawed several times, which caused a few tough months. However, we need to follow our discipline. And since one never knows in advance when this pattern will change, staying disciplined and limiting the losses is the most important part of our trading plan. Here is a year by year performance and the P/L chart for 2008-2015 (live trading began in late 2012 as shown on the performance page): 2008: 13.50% 2009: 18.00% 2010: 25.70% 2011: 33.40% 2012: 40.80% 2013: 29.40% 2014: -14.90% 2015: 17.00% AVG: 20.36% The chart presents non-compounded P/L on 20k account. Some competing condor services that had multi-year track records appearing to be low risk with high returns took devastating losses last year because of inadequate risk management. Option selling strategies, especially those that roll from month to month to hide losses in their track record, often have hidden risk. Selling options without risk management is not a profitable venture over the long term, but in the short term it can be very easy to get fooled by randomness as you can easily go months or years without taking losses. It’s why you see very few option selling strategies with a lengthy track record. What risk management does is lower your win rate in order to maintain positive expectancy. It often sounds counter intuitive to new traders to learn they need to win less in order to make more money (or make any money at all) over the long term. We urge you to be very cautious about any service that only promotes a high win rate. Win rate alone tells you absolutely nothing. How many times do you get emails about a "options strategy with 99% winners" and "make $xxxx dollars per month". Unfortunately, humans desperately want to believe there is a way to make money with virtually no risk. That’s why Bernie Madoff existed, and it will never change. It is also important to remember that Steady Condors reports returns on the whole portfolio including commissions. Our 20k unit will have two trades each month (the RUT MIC and the SPX MIC). With 20% cash, we will allocate ~$8,000 per trade. If both trade made 5%, that means $400 per trade or $800 total for the two trades. In our track record, you will see 800/20,000=4%. Other services will report it as 5% (average of the two trades). In addition, our returns will always include commissions. If you see 5% return in the track record, that means that $100,000 account grew to $105,000. Plain and simple. If we were to report returns on margin as most other services do, our returns would be about 30-35% higher. For example, 2015 YTD return would be 23.1%% and not 17.00% As a reminder, Steady Condors is a strategy that maximizes returns in a sideways market and can therefore add diversification to more traditional portfolios. Selling options and iron condors can add value to your portfolio. They aren't the holy grail. Just like everything else. Both our Anchor and 15M strategies (available on the LC Diversified forum as part of any membership) have had negative correlation of monthly returns to Steady Condors and therefore have blended together nicely for a diversified and relatively low maintenance portfolio. Click here to read how Steady Condors is different from "traditional" Iron Condors. Related Articles: Why Iron Condors are NOT an ATM machine How to Calculate ROI in Options Trading Why You Should Not Ignore Negative Gamma Can you double your account every six months? Can you really make 10% per month with Iron Condors? Want to join our winning team? Start Your Free Trial
  9. As you noticed, we closed our December trades two weeks before expiration, to reduce the negative gamma risk. We recommend reading the Why You Should Not Ignore Negative Gamma article to understand the gamma risk. This is another thing we do differently from many other services. 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. Here is the P/L chart for 2008-2015 (live trading began in late 2012 as shown on the performance page): The chart presents non-compounded P/L on 20k account, including commissions. Total P/L since Jan. 2008 is $38,502 or 192.5%. 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. This is why we introduced the Steady Condors. We tweaked the traditional Iron Condor strategy to address the issues and make the P/L curve much smoother. As we always say, you can't control returns, only manage risk. I really dislike when people make trading sound like if you are really good at it you somehow have control over your returns. The only thing you can do is build a winning strategy (better yet, multiple winning strategies with low correlation) and then manage your risk and position size so that you stay in the game long enough to let your edge work out over the long term. What risk management does is lower your win rate in order to maintain positive expectancy. It often sounds counter intuitive to new traders to learn they need to win less in order to make more money (or make any money at all) over the long term. We urge you to be very cautious about any service that only promotes a high win rate. Win rate alone tells you absolutely nothing. How many times do you get emails about a "options strategy with 99% winners" and "make $xxxx dollars per month". Unfortunately, humans desperately want to believe there is a way to make money with virtually no risk. That’s why Bernie Madoff existed, and it will never change. It is also important to remember that Steady Condors reports returns on the whole portfolio including commissions. Our 20k unit will have two trades each month (the RUT MIC and the SPX MIC). With 20% cash, we will allocate ~$8,000 per trade. If both trade made 10%, that means $800 per trade or $1,600 total for the two trades. In our track record, you will see 1,600/20,000=8%. Other services will report it as 10% (average of the two trades). In addition, our returns will always include commissions. If you see 5% return in the track record, that means that $100,000 account grew to $105,000. Plain and simple. If we were to report returns on margin as most other services do, our returns would be about 50-60% higher. For example, 2015 return would be 80.8%% and not 46.7%. Another point worth mentioning is rolling. If you look at some services, you might see few last months of data missing. That would usually mean that the trades were losing money and have been rolled for few months, to hide losses. In some cases, the unrealized losses can reach 25-50%. Rolling might work for some time - till it doesn't, and unrealized losses become realized. By then it's usually too late. It is very important to know how returns are reported, in order to make a real comparison. Always make sure to compare apples to apples. As a reminder, Steady Condors is a strategy that maximizes returns in a sideways market and can therefore add diversification to more traditional portfolios. Selling options and iron condors can add value to your portfolio. They aren't the holy grail. Just like everything else. Both our Anchor and 15M strategies (available on the LC Diversified forum as part of any membership) have had negative correlation of monthly returns to Steady Condors and therefore have blended together nicely for a diversified and relatively low maintenance portfolio. Click here to read how Steady Condors is different from "traditional" Iron Condors. Related Articles: Why Iron Condors are NOT an ATM machine How to Calculate ROI in Options Trading Why You Should Not Ignore Negative Gamma Can you double your account every six months? Can you really make 10% per month with Iron Condors? Want to join our winning team? Start Your Free Trial
  10. This week we closed our June trades with gains of 10.1% on margin, and 7.9% return on 20k unit. This makes the year to date non-compounded return 31.6% on a whole account (including commissions). If we reported returns like most other services do (Compounded ROI before commissions), we would report 48.9% gain. As you noticed, we closed our June trades three weeks before expiration, to reduce the negative gamma risk. We recommend reading the Why You Should Not Ignore Negative Gamma article to understand the gamma risk. This is another thing we do differently from many other services. 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. Click here to view the article
  11. It's official now: Steady Condors has completely erased last year's losses and drawdown. Steady Condors has just finished another profitable month of trading with gains of 7.7% on margin, and 6.2% per unit for April expiration. This makes the year to date return 17% on a whole account. Of particular importance is that this month’s gains bring Steady Condors back to new equity highs after a somewhat lengthy (yet statistically expected) drawdown over the last year. Those who had the discipline and patience to stay the course have been rewarded. Risk management, as always, is what made the difference. Click here to view the article
  12. We closed today our Steady Condors March trades for an average gain of 7.5% before commissions, which translates to 5.8% return on the whole account after commissions. Steady Condors first goal is to manage risk and to prevent big losses. We don't promise you some absurd numbers like 10%/month or 5%/week, but we are proud to report performance in the most honest and transparent way possible. I will explain later how our performance reporting is different from other newsletters, but let me start by quoting Jesse Blom's post on the forum. Click here to view the article