As some of you know, Condor Options began as a quiet little research and trading outfit catering to a few private clients. Over time, we decided that we should open up our strategy to the public, and thus this website was born. We never expected much in terms of traffic and visibility, mostly because iron condors are a very specific (and let’s be honest, advanced) options strategy, so we didn’t anticipate a very large audience, and haven’t really tried to build one as such.

In spite of that, we’re now getting over 3000 visitors and 7000 pageviews per week! To be specific, according to Google Analytics, from Sept. 22 through Sept. 28 we had 3005 visits and 7438 pageviews. A lot of our readership has come from our current subscribers, who have been great about referring their friends and families.

If you’re just joining us, there are a couple things you can do to stay connected:

1. Signup for our free periodic newsletter, called Condor Options Reports, by filling out your information in the form at the top-right of our site. We won’t bother you too often, but we will offer you some very helpful articles about iron condors and the Greeks. Note that our Reports are not identical to this blog, so if you’re not signed up you’re definitely missing out on some excellent content.
2. Get our blog updates for free via RSS: You can add our RSS feed to your favorite feed reader and get automatic updates of any new posts.
3. Subscribe, obviously! We’re currently at our membership limit, but we do maintain a priority waiting list that allows our readers to get first access to any membership spots that open up.

Thanks again for reading, and as always we love to get your questions and comments.

One of the truisms that gets tossed around in trading circles is that “entries don’t matter.” This is counterintuitive for many traders, especially new traders, who will spend hours or even days looking for “the perfect setup,” the trade with such great odds of success that it just can’t fail. The problem is, any trade can fail, and when you add in the second half of that truism, it makes a lot more sense: “entries don’t matter; exits do.” In other words, there’s no such thing as a perfect setup or flawless entry signal, and just as a graceful exit can turn a tenuous trade into a confirmed winner, a botched exit can make a total loser out of even the nicest of entries. It’s always better to look at the whole life of a trade.

We’re not particularly big on trading psychology (maybe because we’re in psychological disarray in so many other areas that our trading mindset gets pushed way down the list, lol) - but there’s definitely some value in thinking about how your strategy should work in different circumstances in advance so that you aren’t caught off guard when those unexpected circumstances do arise. Looking at each trade as a whole has a lot to do with this. So let’s look at three aspects of our strategy that relate to these questions of preparation and holistic thinking: trading, overtrading, and waiting.

Trading

One of the principal advantages of the iron condor strategy is that it requires very little actual trading. In other words, you can be a lazy, undisciplined jerk and still not necessarily get clobbered. (Not that we advise this approach or anything.) As you probably already know, an iron condor is a four-legged market-neutral credit-producing trade that is best entered four or more weeks before expiration, and best exited 4-10 calendar days before expiration (or allowed to expire worthless, if you think you’re some kind of hero cowboy). Given that iron condors are risk defined and non-directional, most of the work in trading them is done up front, and in that sense entries do matter a lot, more than in some other strategies. Exiting obviously matters, too, and occasionally these trades require some adjustment. But the process of trading itself is pretty straightforward. The biggest danger you’re likely to face when trading iron condors isn’t so much erroneous entries, though, but rather…

Overtrading

That’s right, overtrading is a constant temptation. Even though we’ve warned before about the dangers of adjusting iron condors, people constantly ask about this aspect of the strategy. And again, for the record: adjusting trades as a matter of common practice is actually riskier than just adding new trades! In other words, you’re always better off putting on a new position that takes account of the present market environment, rather than trying to “repair” or “adjust” every old or busted trade.

If you find yourself frequently watching your positions and wanting to tweak something here or modify something there, here’s a tip: don’t. Instead, if you have at least 6 months of experience trading iron condors, try this: sell a call or put spread that is contrarian to whatever the market is doing that day. For example, if the Dow is up 100 points, sell a DIA call spread that is several strikes away from the current price. When the index moves back down a day or three later, sell a put spread that is several strikes away from the then-current price. Guess what? You’ve just legged into a nice iron condor. We should add that this little strategy should be done <em>with as few contracts as possible</em>. You’re not trying to lay on major positions, but simply to capture some market movement and avoid screwing up your other positions. We don’t officially endorse the notion of legging in to any trade that you actually care about, because it’s just too hard to accurately call the tops and bottoms of market movement on a consistent basis.

If that last paragraph is confusing or unclear, don’t worry: the only point to remember is that once you have some iron condors in place, <em>leave them alone</em> - they’ll thank you for it.

Waiting

But what about those times when you don’t already have some nice trades in place? This last scenario is even tougher: watching days tick by with all of your capital just sitting in your account, undeployed, is frustrating and even infuriating. Having the discipline to wait for a good trade is sometimes so difficult it makes avoiding overtrading look easy. The constant temptation is to try to force something to work, and to enter a mediocre trade at a bad price. The most likely result of failing at the waiting game is that when the real action resumes, you’re left with a trade that is too narrow or too risky and is likely to end up as a loser. As far as iron condors go, selling condors in low volatility environments is a common mistake that traders make, and they suffer for it when volatility pops and the trade is either threatened or is unchanged even after a week or two because of that new volatility environment.

The correct response to unfavorable conditions is to wait. As Warren Buffett says: “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” One of the advantages that we traders have over market makers is that we don’t have to be in the market at all times - instead of having to provide liquidity and take the other side of trades we might not like, we have the ability to only enter trades of our own choosing. That ability should not be underestimated: it means that whenever conditions are unfavorable - whether that means low volatility, an upcoming market-moving news item, or whatever - we can always choose to wait for the next trade to come to us.

Our members know the importance of waiting because they watch us do it all the time. This month, for instance, we’re about three weeks away from expiration and we only have one position open (we usually trade 3 - 5 positions each month). Why? Because volatility has plunged, markets have rallied to very overbought levels, and we refuse to enter bad positions just to meet some hypothetical quota. Our members are smart enough to know that one good position is always preferable to two or three mediocre ones.

Conclusion

The ultimate point here is that it’s not enough to be able to recognize good trades and deploy a strategy. You also have to have the discipline to avoid overtrading and the patience to wait for good trades instead of trying to force bad ones. “Discipline” and “patience” may not sound as sexy or interesting as “negative gamma risk” or “exponential theta curves,” but those two prior qualities will take you farther than any strictly technical knowledge ever can.

Analysis: This is an easy one, so we’ll make it quick: the Nasdaq 100 (QQQQ) is very short-term overbought, to the tune of a 2-day RSI (Relative Strength Indicator) reading of 99.05 out of a possible 100. It’s reasonable to expect some weakness there over the next day or two.

Trade: How to play this thesis? Three possible routes:

1. If you’re totally gung-ho, just buy the QQQQ October 50 puts for $0.59, they should get a nice pop.
2. If you’re a bit more reasonable, you could buy those same puts, but in addition sell the QQQQ October 48 puts for $0.26, for a net debit of $0.33. After all, no one’s saying that tech is going to collapse (after all, they’re the big leaders now, right?), we’re just taking advantage of a possible pullback blip.
3. Or if you’re really smart, and don’t want to be one of the suckers buying time premium, you can have exactly the same directional thesis but be a net seller of time decay by selling the QQQQ October 52/53 call vertical for a net credit of $0.32. That means you’re selling the 52 calls and buying the 53 calls. (Psst, don’t ever sell naked calls, just don’t do it.) The benefit of this third approach is that if there’s never any pop down and the index just drifts for a bit, you can still have a winning trade. On the other hand, a short call vertical isn’t really appropriate as a one- or two-day trade, so maybe those naked long puts aren’t such a bad idea…

Of course, if you’re clever enough to understand the benefits of selling time premium, you’re probably already a subscriber to our iron condor newsletter, where all we do is hang around and sell time premium.

Oh, and all the normal “bonus trade” disclaimers apply: we’ll probably never mention this trade again, you’re on your own, this trade may very well destroy your life savings and give you the hiccups, etc.

We’re glad to announce that our iron condor membership service is now available to be autotraded by Optionshouse, one of the top options brokers around. While we don’t exclusively recommend any one particular broker, we can definitely recommend that you check out Optionshouse. Their customers report trades filled faster and at better prices than some other prominent options brokers, and you just can’t argue with their commission rates: $9.95 per trade, with no additional contract or per share costs.

We wanted to mention those rates because some of you have had questions about the increased commissions that our ETF-based iron condor strategy incurs. With Optionshouse, an iron condor costs about $40 to enter (4 legs times $9.95), regardless of whether you’re using ETF options, options on a traditional index like SPX or RUT, or options on some obscure biotech company!

To start having our strategy autotraded in your account, you only need to:

1. Subscribe to our iron condor newsletter service
2. Open an account with Optionshouse and contact them to set up the autotrade allocation.

This is part five in our series, Newsletter and Trading Service Takedowns. We haven’t posted a newsletter takedown since late August, and we wouldn’t want to deprive you for too long!

Our candidate for evaluation is a site called 10PercentPerMonth.com, and this review was requested by a reader. If you have a trading newsletter you’d like us to review, just contact us.

Summary conclusion: this seems to be one of the least distasteful of sites that we’ve seen in awhile, and their basic product - which happens to be an iron condor strategy - is sound. But, as we will explain shortly, there are several reasons why you should think twice before signing up with these people.

Honest marketing - Pass

About the only internet marketing their site does seems to be the ad you see on the left, which shows up in Google and some various investing websites. (We can’t speak to any print or email marketing, since that those ads are harder to find if you’re not already on their mailing list.) If all marketing was this simple and dignified, the world would be a better place. In fact, it says something sad about the state of our society that an ad touting 10% monthly returns on a product actually counts as dignified - if it weren’t for all the slimy hucksters screaming about 3000% gains on their penny stocks (or whatever), a service claiming 10% monthly returns might still count as slightly audacious! We certainly feel audacious when we publish our performance numbers, and we’re in the same boat. So we have no problem whatsoever with their marketing, and how could we? We claim exactly the same thing, largely because a successful iron condor strategy really will average in excess of 10% monthly.

Repeatable returns - Fail

Before assessing the repeatability of their returns, let’s quickly review what this site offers. For $98 per month (after a discounted trial month), you receive one iron condor trade via email. It looks like the site relies on the SPX, and opts for high risk, low reward trades.

In principle, it shouldn’t be a problem to verify the claimed performance touted on their site. But the performance page doesn’t give any information beyond net percentage returns, which isn’t very helpful at all. What we can tell from the sample trade they provide and the basic return profile is that 10PercentPerMonth is using a very wide, very low-credit iron condor as their core strategy. The advantage of this approach is that you get trades with a success rate of 80-90%. But the overwhelming disadvantage of high-probability trades is that they also incur much higher risks: the smaller up-front credit provides less of a safety buffer in the event of a major shift in the underlying, and the larger amount of capital at risk means that losing trades hurt a lot more than they do if you regularly pursue high-reward/medium-probability trades (as we do).

Risk management - Fail

From a risk management perspective, there are several problems with the strategy this site pursues:

1. ETFs, not traditional index products, are the way to go. As we’ve explained elsewhere, there are several reasons to avoid SPX, OEX, RUT, etc. when you’re starting out with iron condors: ETFs provide faster fills and tighter spreads, and the closer strike prices allow you to manage risk with more precision. But 10PerceptPerMonth still uses the old school SPX approach - which is fine if you’re a professional floor trader, but isn’t optimal for average joes.
2. Only one trade per month is a recipe for disaster. This should need no further explanation.
3. As noted above, high risk / low reward trades are not the right way to approach risk management. In this sense, their marketing is actually totally false: iron condors can definitely be “a low risk investment strategy” as claimed in the ad, but not the way these guys trade them.

If 10PercentPerMonth were here, they might say, “fine, but risk management isn’t such a big deal, since we don’t make you pay subscription fees for any losing months.” Honestly, this is a nice gesture, but it’s actually counterproductive: it incentivizes the trader to not worry so much about managing risk and making good trades, because hey, members don’t have to pay for losing months, so everyone should be happy, right? Not quite: in the event of a major loss, subscription fees are probably the last thing on anybody’s mind, and writing off a measly $98 is a poor substitute for the $1000 you just lost due to poor risk management.

Reasonable Price - Fail

This is a simple comparison: 10PercentPerMonth asks for $98 for one trade, with no further support - no adjustments as needed, no timely exits, no nothing. We ask for $139 (or less, for longer term memberships) for three to five trades, with full and fast member support, including trade exits and adjustments as needed, trade analysis, index diversification, and free autotrading.

Our “reasonable price” test is to estimate how much our service would cost if we used the pricing standards of the newsletter we’re taking down. In this case, if we followed the example of 10PercentPerMonth, a monthly subscription to Condor Options should cost $294 - $490 ($98 x 3-5 trades), plus, oh, maybe another $50 for the support and other features? But $344/month is just ridiculous, and so is paying $98 for the comparatively sparse offerings of 10PercentPerMonth.

In short, if you want to learn to trade iron condors, we advise you to look elsewhere.