Iron Condor Profits
IRON CONDOR: How To Lock In Your Monthly Profits (and sleep like a baby at night!)
How To Lock In Your Monthly Iron Condor Profits (and sleep like a baby at night!)
When I first starting trading the Iron Condor Option Strategy I would try to let them run all the way until the very end.
After I put the trade on, my plan was to just leave them be until expiration day where the options would expire worthless and disappear into option heaven.
I figured this was the smartest way to go, since I would bank the ENTIRE credit received – and I wouldn’t have to pay any broker commissions to close out the trade.
But I don’t think this way anymore.
After many sleepless nights, several ulcers, and a number of close calls, I’ve changed the way I run my Iron Condor business.
Now – as soon as I place the trade, I set a contingent order to buy back the call spread - as well as the put spread - once I’ve made the bulk of the profit in each spread.
For example, if I sold a RUT Iron Condor for a total credit of $1.00 – or .50 each side – I would set up a contingent order to buy back the call spread for .10 or .15. Then I would set up a contingent order to buy back the put spread for .10 or .15.
Personally I don’t think so.
Sure I might make less than if I tried to milk them all the way through to the very end.
But not necessarily.
And even so, its not THAT much less.
By buying back, I've LOCKED IN the BULK of the profit.
AND - I've reduced my risk.
AND – I've created the potential for me to make even more on the trade than I originally planned – without increasing my original risk.
Here’s an example:
I've found that many times during a trade, the premiums can drain quite rapidly. In fact, its possible for a spread to drain the majority of its premium in a matter of days.
Say I put an Iron Condor on RUT – 40 days from expiration - for a credit of $1.00 – or .50 each side.
Immediately after placing the trade, RUT drops down over a number of days.
3 days after I put the trade on, I see that I can buy back my CALL side of the Iron Condor for .15.
If I do nothing, I am choosing to risk my CALL spread margin for the next 37 DAYS for a measly $15.00 of remaining profit (per spread).
On the other hand, if I buy it back for .15, I lock in the bulk of the profit for the CALL side – making that ROI in just 3 days.
Then if RUT bounces back up – which it will often do after a drop - I no longer have any risk on the upside.
In fact, if RUT bounces back up high enough, I could RESELL the same CALL spread that I originally sold for the same original credit – or maybe even more – increasing my total ROI for the same RISK amount that I began with.
And even if I don’t resell any spreads – but just buy them back at .15 to close out the entire trade – in most cases I will be out of the trade MUCH sooner than if I would be if I were to try and hold on until expiration.
It can also totally eliminate my exposure to ‘Expiration Week Hyjinks’, where options can start to act funny during expiration week via the Greeks.
Personally, this way of trading Iron Condors makes much more sense to me.
It frees up my capital sooner, can increase my ROI over number of days in the trade, reduces my risk, helps me sleep better at night - and takes care of those painful ulcers!