Iron Condors Rule!

By Don Paul Fuller

When my son was 10 years old, he asked me what I did to earn a living. He told me all he saw me do was sit in front of a computer screen, read books, or hang out at the Surf Club. Occasionally I would travel, sometimes with the family, more often not. He was curious, as his friend,¬,,s parents all had what they called ,¬"a regular job.,¬

I told him that, among other things, (I am a full time network marketer) I tended Iron Condors.

Obviously, I had to explain to him what an Iron Condor was: An Options strategy utilizing credit spreads; a Bull Put Spread and a Bear Call Spread with the same expiry.

I got a surprise at that point. He knew what a Bull was and he knew what a Bear was; what surprised me was that he asked if I was pitting them against each other.

Never underestimate a 10 year old.

If you are at that stage in your learning about Options that you are starting to look at the more complex options strategies used by traders, you probably have heard about Collars, Spreads, Verticals, Calendars, Strangles, Straddles, Butterflies etc., but have not yet got to the stage where you know when and why you should use them.

Well, as I told my son, I tend Iron Condors as my (occasional) job. I use them to generate income from my trading account when I have no clear indication as to the direction stocks will take.

I do this by selling a Put credit spread (sell a Put out of the money, buy a Put even further out of the money) for a net credit more than the brokerage cost. The margin my broker subtracts from my account allows me to calculate the risk and return ratio, and I calculate the chances of the spread expiring un-exercised. There are any number of free software packages that do this.
I also sell a Call credit spread (sell an out of the money Call, and buy an even further out of the money Call) again for a net credit more than the brokerage cost.

By doing this I have created an Iron Condor, which will generate ,¬"premium,¬ no matter which direction the stock takes. If the stock moves close to my positions, so that the Call or the Put is in the money, I make adjustments.

I sell the credit spreads no more than 50 days from expiry, and no less than 25 days from expiry. If I close my positions, I make the decision to close no less than 8 calendar days from expiry, as weird and unexpected things happen in expiration week.

To maintain these trades for income, I spend around 20 minutes a day, checking the positions, looking for my next trades, and calculating potential exit points.

If all goes well I can generate up to 30% on the margin. If all doesn,¬,,t go well, I make adjustments and take a smaller profit. If things go bad, I close out the position and if necessary, take a (usually) small loss on that position.

I select several stocks to form my ,¬"Income Portfolio,¬ which allows me to smooth the volatility of the individual stocks; I nearly always use ETF (Exchange traded Funds) stocks, which accentuate the smoothing effect of diversification.

To summarize: Selling Iron Condors with a front month expiry generates credit. If the position is compromised, adjustments to the position are indicated. Having more than one position (2 or more stocks or ETF,¬,,s) smoothes the profit curve of your portfolio.

You are selling time and volatility, not the price of the underlying stocks.

And it is a ,¬"Real Job,¬ even if it only takes me an hour or two each week.

The job pays well.

The Boss looks at me in the mirror in the morning.

I work only when I want to.

Yes, Iron Condors do rule!