by Ted Nino
When I first discovered the <a href='http://www.ironcondoroptiontradingstrategy.com'>iron condor</a> and began trading it - I never thought about whether or not I should ever take them off early. I just left them on all the way till the very end.
After I placed the trade, I would just leave it be until expiration day where the options would expire worthless and disappear into option heaven.
I just assumed this was the most effective way to play the trade - especially since it allowed me to save money from my broker by not paying to close the trade.
But that was a long time ago - and since then - things have changed.
Now, after experiencing too many nights where I couldn't sleep, a number of very 'close calls', more than my fair share of stinging ulcers and even a near hernia, I've made a change to the way I trade iron condors.
I now place contingent orders to close each credit spread on either side of my iron condor as soon as the majority of profits are realized.
For example, if I sold an Iron Condor on XYZ 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.05 or.10 (or at the very most.20).
After I place the trade, I would set up two contingent orders with my broker. One would be to buy back the upper half spread of the iron condor for ten cents - and the other to buy back the lower half spread of the condor for five or ten cents.
Now a lot of iron condor traders might say this would be a dumb thing to do.
But personally - I completely disagree.
Sure I might make less than if I tried to milk them all the way through to the very end.
But then again, not necessarily.
Let's take a second look at the amount of money we are talking about here. Ten cents per side - or twenty cents total. Okay - sure - it's nothing to sneeze at - but when you step back, get a broader look, and start to take a few other things into consideration - it can actually start to look quite miniscule.
What's more important to me, is that by buying back those credit spreads, I've LOCKED IN the BULK of the profit.
AND - I've reduced my risk.
I have also given myself the opportunity to generate ADDED gains from my overall position - without adding any extra risk.
Let me show you what I am talking about here:
I've found that many times during a trade, the premiums in options 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 XYZ - 40 days from expiration - for a credit of $1.00 - or.50 each side.
Then, as soon as I put the trade on, our underlying starts to move down and continues doing so for a couple trading sessions.
Four days after I initiated the trade, I discover that I can now purchase the call credit spread of the position for just ten cents.
At this point, I have two choices. I can do nothing and just let my positions play - or - I can buy back that call credit spread for .10 and entirely remove the upper half of the trade. If I decide to do nothing - I have chosen to retain my upper side risk in the trade just to try and eventually capture that tiny remaining .10 potential profit.
But - if I instead just spend the ten measly bucks to pull off that upper credit spread - I will LOCK IN the majority of the profit that was available in that spread - and earn a great return on investment in just four days.
Another thing to consider, is if the stock or index we are using abruptly changes direction and heads back up (which of course DOES happen all the time) we really have nothing to be alarmed about since we've removed those upper options and eliminated all upside risk.
In fact, if XYZ 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 amount of RISK that I began with.
And even if I don't resell any spreads - but just buy them back at.10 to close out the entire trade - it reduces my risk, frees up my capital sooner, increases my ROI over number of days, and gets me out of the trade MUCH more quickly than if I were to try and hold on all the way until expiration.
See, I really love the idea of being able to tad a 'trading vacation' - or what I mean by that is a 'break' away from trading - of having to one way or another 'engaged' in the stock market every day. I love being able to be in a trade for a week or so - and then take a week or so off - away from my trading computer screen. I love being able to get out and do other things without having that little worrisome 'trading nag' in the back of my head - always wondering what's going on in the stock market and wondering if my position is doing okay.
And being able to temporarily take some time to 'get away' from the game - from the <a href="http://www.youtube.com/watch?v=8j7JdysThY8">iron condor</a> and 'option trading' and 'vega' and 'adjustments' and 'theta decay' - to be able to go out and do other things during market hours without always feeling the need to check quotes on my phone to see what the market is doing - and just having the opportunity to fall into bed at night and sleep like a baby without a care or worry about whether or not there will be a huge gap tomorrow morning at the open...
That's priceless.
Or - at the very least, it's DEFINITELY worth the.20 or so it costs me to exit early out of the trade...for what is STILL a remarkable monthly profit.
Ted Nino is an option selling fanatic - especially passionate about trading the <a href="http://www.youtube.com/watch?v=8j7JdysThY8">iron condor</a> , the Credit Spread, Double Calendars, Gamma Scalping, and the Butterfly Spread. Go to his <a href='http://www.ironcondoroptiontradingstrategy.com'>Iron Condor</a> Website to find out more about his 'Simple Paint By The Numbers Blueprint' for playing the Iron Condor for reliable monthly returns.
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New Unique Article!
Title: Iron Condor - I want My Life Back
Author: Ted Nino
Email: theeinfoco@gmail.com
Keywords: iron condor,option trading,stock trading,stock,trading,forex trading,forex,currency trading,stock market,investing,investment,finance,personal finance,wealth building,business
Word Count: 1071
Category: forex
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