Everand Logo

Welcome to Everand!

  • Discover millions of ebooks, audiobooks, and so much more with a free trial

    Only $11.99/month after trial. Cancel anytime.

    Iron Condors
    Iron Condors
    Iron Condors
    Ebook168 pages2 hours

    Iron Condors

    By Mark D. Wolfinger

    4.5/5

    ()

    Read preview

    About this ebook

    Iron Condors is the third book in the "Best Option Strategies" series and each offers a hands-on education for some of the most useful option strategies. It is intended to be very different from all other books about iron condors.

    Expect to learn the basic concepts of trading iron condors: (1) How to decide which options are suitable for your iron condor. Know in advance that there is seldom a single ‘best’ position that suits all traders; (2) Ideas -- with specific examples -- on how to manage risk; (3) Figuring out when to exit. We’ll discuss the pros and cons of locking in profits quickly (not a good idea) vs. holding longer (but not too long).

    There is more that makes this book so special. It is not just a “how to” book because I share lessons learned from a lifetime of trading options (starting in 1977 when I became a CBOE market maker). I share my philosophy on iron condor trading and ideas on how a winning trader thinks. The goal is to offer guidance that allows you to develop good trade habits and an intelligent way of thinking about trading. We all learn as we gain experience, but some experience can be destructive when mindsets -- that are dangerous to your longevity as a trader -- become ingrained habits. This book helps traders avoid developing a difficult-to-break way of thinking.

    This book was prepared for an audience that already understands the most basic concepts about options. Although some of the material is suitable for rookies. If you do not understand the difference between a put and call or have zero trading experience, I encourage you to begin with the most basic concepts about options before continuing. There are numerous sources of information, but I recommend my recently updated (2013) The Rookie’s Guide to Options, 2nd edition.

    Another decision involves the pre-planned (I encourage preparation of a trade plan for each trade) exit when the target profit is achieved. If you have no profit target, then you will be hard pressed to exit when the trade continues to earn money. As profits accumulate, it becomes a daily decision: hold or exit. It is important to recognize when there is too little remaining profit potential for the prudent trader to hold. The trade plan helps with making good and timely decisions -- and that makes you a more disciplined trader.

    Closing the position could also be a gut-wrenching decision that locks in a loss and is made because it has become essential to take risk-reducing action. The book offers a solid introduction to risk management for iron condor traders.

    The following points represent the foundation of my beliefs, and the book is written accordingly: (1)The ability to manage risk is the most important skill for any trader; (2) Take time to learn about the Greeks. It is not difficult, and it allows you to recognize the risk (and reward) potential for any position; (3) Discipline is necessary when managing risk. It is one thing to say that you understand what risk management is all about, but it is another to put it into practice; (4) Let another trader earn the last nickel or dime on the call and put spreads that comprise the iron condor. Pay a small sum to exit, lock in profits, and eliminate all risk.

    The iron condor is most often traded as a single transaction, consisting of four legs. However, it is managed as if it were two positions. This is not a contradiction. This mindset is covered in detail

    LanguageEnglish
    PublisherMark D. Wolfinger
    Release dateJul 28, 2014
    ISBN9781310372582
    Iron Condors
    Author

    Mark D. Wolfinger

    I first began trading options in 1975; just two years after the CBOE (Chicago Board Options Exchange) opened its trading floor. My strategy of choice was writing covered calls.In late 1976, I was employed by Monsanto Company as a research chemist when a friend bought a seat on the CBOE. We had lengthy discussions about his new venture. Long story short, he gave me an opportunity to come to Chicago and trade as a market maker as the nominee for someone who owned a seat on the exchange, but who did not want to trade himself. I accepted, quit my job and drove to Chicago. That was December 20, 1976 and my life changed forever.I'm still in the options business, 37 years later. I left the CBOE trading floor in the year 2000. Since that time I've been trading my own account — just as you do — as a retail customer. But, I added something new when I began writing and teaching others how to trade options with a conservative bias. My first book was published in 2002 (The Short Book on Options) and others followed.Update. I am now retired from trading.I published a blog for several years, and the contents are still available. My current projects include a) developing this blog at about.com and would love to hear from you with comments, questions, requests for topics to discuss, etc., and b) writing a series of eBooks on individual option strategies.My books:• The Rookies Guide to Options, 2nd Edition (2013)• Create your own Hedge Fund (2005)• The Short Book on Options (2002)My eBooks:• Introduction to Options: The Basics (2014)• Writing Naked Puts (2014)• The Short Book on Options (2002, 2014)• The Option Trader’s Mindset: Think Like a Winner (2012)• Lessons of a Lifetime: My 33 years as an Option Trader (2010)

    Read more from Mark D. Wolfinger

    Related to Iron Condors

    Related ebooks

    Investments & Securities For You

    View More
    View More

    Related podcast episodes

    Related articles

    • Article

      How Options Can Help Your Portfolio

      Jun 3, 2020

      For some people, options trading conjures either fantasies of instant riches or nightmares of losing everything. But those are the visions of market-timing speculators, not long-term investors. For most investors with a long-term view, trading option

      7 min read

    • Article

      Thinking About Day Trading? Read This First

      Sep 22, 2020

      In the midst of the pandemic, you may have noticed a rather unusual trend: More and more people are jumping into the stock market. Despite, or perhaps even because of, extreme volatility in the market and endless speculation about what could happen n

      3 min read

    • Article

      Discipline Goes A Long Way

      Mar 31, 2022

      The life of a trader is not what most of us might imagine it to be – that is, glamorous, exciting and paved with gold. More likely it is solitary, private, a bit boring and, when done right, provides a living. We could all be traders. We could all be

      5 min read

    • Article

      Covered Calls: One Way to Earn Extra Income on Your Stocks Without Additional Risk

      May 2, 2018

      "Boy, I would definitely sell Apple if it reached $170 again," a client said to me recently. Like many people, she believed entering a limit order at that price was the logical next step. As we explained, however, writing a covered call option might

      3 min read

    • Article

      What I Learned from Losing $200 Million: The 2008 financial crisis taught me about the illusion of control, and how to give it up.

      Dec 24, 2015

      I’d lost almost $200 million in October. November wasn’t looking any better. It was 2008, after the Lehman Brothers bankruptcy. Markets were in turmoil. Banks were failing left and right. I worked at a major investment bank, and while I didn’t think

      15 min read

    • Article

      He Learned to Trade for Profit - and Can Teach You, Too

      Jan 31, 2019

      Raymond Rondeau, 55, of Exeter, R.I., is a trader, president of the New England American Association of Individual Investors chapter, and creator of AAII's new course, "Investing Strategies and Technical Analysis." When did you start trading? I began

      2 min read

    • Article

      A Little Hedging Can Go a Long Way to Protect Your Retirement Savings

      Jun 10, 2020

      "Don't worry, the market always comes back." If you haven't heard this comment yet -- from a well-meaning friend or co-worker, or maybe a concerned financial professional -- you almost surely will. We're all hoping for the best but bracing for the w

      4 min read

    • Article

      How Investors Can Prosper With Technical Analysis

      Feb 6, 2019

      Many investment advisors and money managers have a little secret. They will proudly tell you that they rely heavily on fundamental analysis, carefully weighing earnings, market share, competitive environment and demographic trends to select the best

      5 min read

    • Article

      Rogue Trader

      Jun 5, 2020

      Rogue Trader
      10 min read

    • Article

      Technical Analysis Tools For Long-term Investing

      Oct 30, 2020

      in the 22 October issue of finweek, I wrote about how I am trying my hand at trading local equities for the first time in over a decade. Some aspects of my index trading have helped (discipline and risk management), but stocks are more volatile and n

      2 min read

    • Article

      4 Closed-End Funds with Sky-High Yields

      Feb 1, 2018

      With robust yields and share prices trading at a discount to the value of their investment portfolios, these four closed-end funds are worth exploring now. For more about how closed-end funds work (and can add juicy payouts to your portfolio), check

      2 min read

    • Article

      What to Do (and Not Do) When the Market Drops

      Dec 12, 2018

      It's been a long time since we ended a year with U.S. stock market being down. However, the longest bull market in U.S. history, which started on March 9, 2009, could finally be coming to an end. If you have watched or read any amount of news recent

      3 min read

    • Article

      Things To Help You Succeed

      Oct 27, 2021

      1. Focus on the outcome. If you focus on what you fear, that’s where you’ll end up. Set your sights on your goals and focus on how you are going to overcome challenges rather than on the challenges themselves. 2. Start small. Practise little test-and

      1 min read

    • Article

      How to Handle a Bear Market

      May 7, 2020

      There's a reason bear markets are often referred to as panics. This one may turn out to be short, but no one can say it hasn't been severe, with investors not only worried about financial security, but about their very lives. The worst thing you can

      2 min read

    • Article

      Keep Your Shields Up When Navigating the Investment Space

      Dec 21, 2018

      Remember the Star Trek episodes of years past? Whenever the Starship Enterprise was under attack, Capt. Kirk would shout something like, "Shields up! Red alert!" The crew would then spring into action just before entering the danger zone. This got m

      4 min read

    • Article

      Ignore Your Gut Instincts When Investing

      Jul 11, 2018

      One of the smartest things you can do as an investor is to stop making moves based on your gut instincts. You will probably become a much better investor, because studies show your portfolio is likely to perform better if you avoid excessive trading.

      4 min read

    • Article

      Why You Need to Invest in Funds Before Stocks

      Aug 2, 2018

      I've recommended many stocks. But I own just one: Amazon.com (AMZN). As an investment writer, I've learned that it's hard to find an industry that the e-commerce giant isn't disrupting these days. "Amazon's world takeover continues," I wrote shortly

      2 min read

    • Article

      Phillip Hagedorn On Investment

      Aug 5, 2020

      How does one approach investment during a global pandemic? The global pandemic is like technology; it has disrupted and continues to disrupt our lives. But unlike technology, the pandemic is not here to stay forever. Diversification is key to navig

      1 min read

    • Article

      Are You a Gambler, Speculator, Investor or Risk Manager?

      Sep 12, 2018

      With today's economic uncertainty and market volatility, it's important to understand the emotions that drive your investing decisions. Whether it's greed, fear, optimism or something else, knowing what motivates you can help you avoid making mistake

      3 min read

    • Article

      How To Count Your Losses

      Nov 15, 2019

      in the previous issue (7 November), I wrote about trading, and in particular about gearing via the use of derivatives, as well as what we should (or shouldn’t) be trading. I promised to return to the other two parts of the equation: How to employ a s

      3 min read

    • Article

      The 7 Best Funds for Beginners

      Jul 30, 2020

      Once upon a time, the biggest hurdle for beginner investors who wanted to build a diversified portfolio was saving up enough to buy that first investment. Funds typically involved large minimum purchases, some of which was eaten up by onerous sales c

      1 min read

    Related categories

    Reviews for Iron Condors

    4.5/5

    5 ratings0 reviews

    What did you think?

    Tap to rate

    Review must be at least 10 words

      Book preview

      Iron Condors - Mark D. Wolfinger

      Iron Condors is the third book in a series that offers a hands-on education for some of the most useful option strategies. It is intended to be quite different from all other books you may have read that discuss this versatile option strategy.

      One popular idea is that iron condors can be used to generate a steady monthly income stream. Although there is truth to that idea, it is a vast oversimplification. Iron condors do provide an income stream for disciplined traders who understand (a) the importance of risk management and (b) how and when to trade iron condors.

      If you have been led to believe that iron condors are a ‘set it and forget it’ strategy, I will try to get that idea out of your head. These positions require careful monitoring, and the frequency depends on the specific options that comprise the iron condor. It is never a position to initiate and then ignore.

      Most iron condors – at least the type that I recommend as suitable for the majority of traders – require some active decision making as long as the position remains in your portfolio. Sometimes that decision requires action to reduce risk. At other times, the decision will be to do nothing and continue to hold. But make no mistake, deciding to hold is a real decision – not to be made lightly.

      Another decision involves a pre-planned (I encourage the preparation of a trade plan for each trade) exit to lock in the profit. As the trade progresses, and when the position is working and profits accumulate, it becomes a daily decision: hold or exit. It is important to avoid being greedy; it is important to recognize when there is just too little remaining profit potential in the trade to warrant holding. That is where the trade plan, and the target profit, can help you become a disciplined trader.

      Closing the position may be easy and pleasurable, such as when you earn the target profit before expiration arrives. However, it could also be a gut-wrenching decision that locks in a loss and is made because it is essential to take some risk-reducing action for a position that has not worked as planned.

      Expect to learn the basic concepts of trading iron condors:

      --How to decide which options are suitable for your iron condor. There is no single ‘best’ position that suits all traders.

      --Ideas on how to manage risk.

      --Figuring out when to exit. We’ll discuss the pros and cons of locking in profits quickly (not a good idea) vs. holding longer (but not too long).

      There is more that makes this book so special. It is not just a how to book. I share lessons that I’ve learned from a lifetime of trading options (starting in 1977 when I became a CBOE market maker). I share my philosophy on iron condor trading and ideas on how a winning trader thinks. The goal is to offer guidance that allows you to develop good trade habits and to avoid falling into easy-to-adopt poor habits. We all learn more about trading as we gain experience, but some mindsets are dangerous to your longevity as a trader and it is best to avoid developing those mindsets because they are so difficult to break.

      To you, the reader

      This book was prepared for an audience that already understands the most basic concepts about options. Although some of the material is suitable for rookies, if you do not understand the difference between a put and call or lack any experience trading options, I encourage you begin with the most basic concepts about options before continuing. There are numerous sources of information, but I recommend my recently updated (2013) "The Rookie’s Guide to Options, 2nd edition."

      My basic tenets

      The following points represent the foundation of my beliefs, and the book is written accordingly:

      --The ability to manage risk is the most important skill for any trader. Those who close their eyes hoping for a good outcome are destined to fail.

      --If you have no knowledge of the ‘Greeks,’ you can still get much out of this book. However, it is mandatory for your long-term success as an option trader that you take time to undertake at least an elementary study of the Greeks. Understanding the Greeks is not difficult, despite what you probably believe, and it allows you to recognize the risk (and reward) potential for any position. But most of all, it ensures that you avoid owning a position (or portfolio) that could — in a worst case scenario — result in losing more money than you can afford to lose.

      --Trading without knowledge of how the Greeks work places a trader at a tremendous disadvantage.

      --Discipline is necessary when managing risk. It is one thing to say that you understand what risk management is all about, but it is another to put it into practice. It is emotionally difficult to pull the trigger on necessary trades (that reduce risk) because most of the time such action involves locking in a loss.

      --Let another trader earn the last nickel or dime on the position. Be willing to pay a small sum to exit the position, lock in profits, and eliminate all risk.

      Other thoughts on iron condors

      --There is often disagreement among traders and brokerage firms about what it means to ‘buy’ or ‘sell’ an iron condor. There is a solid rationale for using either term when making the trade, and there is no need to rehash the arguments here. I prefer the term ‘buy’ but will avoid using either term when discussing the trades. However, you must know what buy (or sell) an iron condor means to your broker so that you can enter orders correctly.

      -- The iron condor is most often traded as a single transaction, consisting of four legs. That is how I encourage you to enter your orders because it is more efficient. However, it is reasonable for the more experienced trader to build the position with two separate trades (sale of call or put spread; followed by sale of the other spread). NOTE that selling the call and spreads separately is more difficulty than it appears, and I recommend against trading this way.

      --The iron condor is managed as if it were two positions. This is not a contradiction. An adjustment is made when one of these two spreads is at risk of losing money much more rapidly than the other spread can earn money to offset that loss.

      --Short one call spread.

      --Short one put spread.

      --Seldom (if ever) hold positions all the way to expiration. It is usually not worth the risk required to seek every possible penny of profit.

      It is easy to generate profits when trading iron condors because, under normal market conditions, traders earn a profit on a majority of their trades. The trade is initiated to produce a profit most of the time (perhaps 80 to 90+%).

      HOWEVER, when losses are allowed to grow (i.e., risk is ignored), it becomes extremely difficult for any iron-condor trader to earn money over the longer term. The key is to manage risk so that no single loss wipes out too many profitable trades. When the trade is expected to be profitable 90% of the time, that means that a loss should be expected approximately one trade per ten. If that loss is allowed to reach its maximum theoretical amount, then it will be more than enough to erase the profits from the other nine winning trades.

      --Using this strategy only during appropriate market conditions is essential. A strongly trending market usually leads to losses. Volatile markets are more difficult to manage, and I encourage you to avoid volatile markets until you have enough experience to feel comfortable when managing risk.

      --Failure to recognize when a position has become too risky for you to hold, leads to large losses.

      --Failure to take immediate action once you realize that risk of loss is imminent is likely to lead to realizing those losses. Sure, part of the time the losses never occur. But it is not reasonable to gamble.

      This strategy is far from perfect, but is worth your time and effort to learn how to trade. It is one of the basic strategies that belong in your arsenal of trading ideas. Do not expect to use it as your only strategy.

      As a reminder, this strategy is most effective when the trader has a market-neutral bias. If you prefer to own positions that prosper during a bullish or bearish market, the iron condor is not a good choice.

      NOTE: Chapter one accommodates the needs of traders who are brand new to options. After that, the text assumes that readers already possess basic options knowledge.

      Part I

      Background Information &

      General Ideas about Trading

      Chapter 1

      Some of the Finer Points

      It is not difficult to learn the basic steps involved with setting up and trading an iron condor. This book teaches you to do that, and does so in great detail. However, because that information is available elsewhere, the major difference between this Iron Condor book and others is that the primary focus is on teaching readers to understand what they are doing, and how to make intelligent decisions.

      When performing a variety of necessary tasks, we do the best we can. We think things through, make decisions and act on those decisions. Trading is different because it is a voluntary activity. If we cannot do the job effectively

      Enjoying the preview?
      Page 1 of 1