IRON CONDOR TIPS, TRICKS AND Q&A

IRON CONDOR TIPS, TRICKS AND Q&A
© Copyright Options Trading IQ. All Rights reserved.

DISCLAIMER Any information contained in this presentation is for educational purposes only. Neither IQ Financial Services, LLC or Gavin McMaster are licensed financial advisors, registered investment advisors, or registered broker dealers. Neither do they provide investment advice, financial advice or make investment recommendations and they are not in the business of transacting trades. Nothing in this communication constitutes a solicitation, recommendation, promotion, endorsement or offer to buy or sell by IQ Financial Services, LLC or Gavin McMaster of any particular security, transaction or investment. Any trades and / or results covered in this presentation may or may not be live trades. All trades and trading results are believed to be accurately presented. However, since the trades may not have been executed in the market, the results may have been under or over compensated for the impact, if any, of certain market factors such as liquidity, slippage and commissions. Therefore there can be no guarantee of accuracy or completeness. No representation is being made that any portfolio will, or is likely to achieve profits or losses similar to those shown. The risk of loss in trading securities and options in particular can be substantial. Customers must consider all relevant risk factors, including their own personal financial circumstances, before making any financial transaction. Options involve risk and are not suitable for all investors. See the Options Disclosure Document: Characteristics and Risks of Standardized Options, available from © Copyright Options Trading IQ. All Rights reserved.

HOW TO ENTER TRADES Stick to indexes to start with Delta 10-15
Open on a down day Aim for 10% income per trade © Copyright Options Trading IQ. All Rights reserved. 3

HOW TO ENTER TRADES Open as two spreads Duration 30-90 days
10 points wide or 20 points wide? Technical factors – watch range expansion © Copyright Options Trading IQ. All Rights reserved. 4

DELTA DOLLARS Delta Dollars can tell you roughly how much a position can gain or lose depending on how much price moves. It’s not an exact science because of our old friend gamma, but this is the rough calculation. Price move in percentage x Delta Dollars E.g. for this position, if price moves up 1%, the position will lose: 1% x $47,391 = $473.91 © Copyright Options Trading IQ. All Rights reserved. 6

DELTA DOLLARS Likewise, if price moves down 1% the position will gain $473.91 If price moves up 2% the position will lose: 2% x -$47,391 = -$947.82 In actual fact the loss will be larger thanks to gamma as losses will accelerate as the position moves against us. Note: this calculation assumes no change in volatility, time to expiry or any other variable other than price. 7 © Copyright Options Trading IQ. All Rights reserved. 7

DELTA DOLLARS Rules can be developed to ensure your Delta Dollar exposure doesn’t get too large. For example, I like to keep my Delta Dollar exposure less than 150% of my capital balance. E.g. If your capital balance is $50,000, don’t let Delta Dollars get above plus or minus $75,000. This will help you avoid blowing up your account. 8 © Copyright Options Trading IQ. All Rights reserved. 8

PRO TIP #1 Making money in the market is actually pretty easy.
Where the challenge comes, is avoiding big losses. Big losses will kill your portfolio. Cut losses before they get out of control. 9 © Copyright Options Trading IQ. All Rights reserved. 9

GAMMA WEEK Gamma risk is highest for short dated options.
Sellers of options are short gamma. Big moves hurt short gamma traders. Therefore, if you are short gamma, a big move in the last week can kill your trade. Each to their own, but I prefer to not take condors into gamma week. 10 © Copyright Options Trading IQ. All Rights reserved. 10

PRO TIP #2 If you have a lot of short gamma in your portfolio, consider adding some long gamma trades like Long Strangles. This helps to mitigate the risk of a large move hurting your overall portfolio. 11 © Copyright Options Trading IQ. All Rights reserved. 11

ADJUSTMENTS When it comes to trading iron condors, being able to successfully adjust, is CRUCIAL to success. Some of my key adjustment rules: If either spread value rises by 200% or 3X. E.g. $100 to $300. If Delta of the short option reaches 25. (From here losses start to accelerate) If the underlying gets within 3% of the short strike If Delta Dollar exposure reaches 150% of net capital If you have adjusted twice, and the trade needs adjusting a third time….it might be time to move on to the next trade. 12 © Copyright Options Trading IQ. All Rights reserved. 12

ROOKIE MISTAKES I see beginners making these mistakes all the time. Don’t be a rookie. Adjusting too often. This results in whipsaw. Adjusting too late. I get a lot of s where price has gone through the traders short strike. They ask me to help them. Unfortunately, by this point it is too late and prayer is their only hope. Not having multiple adjustment strategies. 13 © Copyright Options Trading IQ. All Rights reserved. 13

PRO TIP #3 After periods of range expansion, come periods of range contraction. After periods of range contraction, come periods of range expansion. It’s not rocket science guys. 16 © Copyright Options Trading IQ. All Rights reserved. 16

DELTA NEUTRAL TRADING A good rule of thumb is to keep Delta to less than 20% of Theta. This makes sense for RUT, but it doesn’t work for every instrument. This trade looks good. Delta is less than 4% of Theta and Vega is only 250% of Theta. Those are nice looking greeks. 17 © Copyright Options Trading IQ. All Rights reserved. 17

DELTA NEUTRAL TRADING Let’s compare the RUT trade with an iron condor on IWM. Notice that the trade is pretty neutral, but the Delta / Theta ratio is at 30%, much higher than in RUT. Why the difference? The key is to normalize delta by using Delta Dollars. 18 © Copyright Options Trading IQ. All Rights reserved. 18

PRO TIP #1 Keeping your normalized Delta / Theta ratio below 20-25% will hold you in good stead and help prevent big losses. Once that ratio gets above those levels, losses can accelerate really, really quickly if the market continues to move against you. 19 © Copyright Options Trading IQ. All Rights reserved. 19

IRON CONDORS - LAYERING
Another advanced technique is called layering. Let’s take a look at another Iron Condor that has gotten in to trouble on the call side. Just look at the Delta and also the Delta/Theta ratio! 20 © Copyright Options Trading IQ. All Rights reserved. 20

Instead of going in to the trade with a full allocation of 10 contracts, this trader could have started with 5 contracts and then added another 5 after the market had moved. While this trade is still under pressure, it is under much less pressure than the initial trade. 21 © Copyright Options Trading IQ. All Rights reserved. 21

CONSISTENCY One of the keys to success in any field is to develop consistency. Consistency in thoughts and actions. If you apply the principle of consistency to your trading, you’ll find it has the power to take you to the next level of success that you are seeking with your trading. Consistency is one of the key things I preach to all my students. Decide what your goals are over the next few months, and work consistently to achieve them. Do something EVERY day to work towards your goals. 24 © Copyright Options Trading IQ. All Rights reserved. 24

LIQUIDITY Slippage and commissions can seriously add up in this game.
Thankfully in the last decade these have both come down significantly. This has enabled retail traders to participate in strategies previously only available to banks, hedge funds and market makers. Still, you need to be smart about it. 26 © Copyright Options Trading IQ. All Rights reserved. 26

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SMALL ACCOUNTS Have to take on more risk
Only trade highly liquid instruments Try Straddles, Strangles or Iron Butterflies Stay away from weeklies Slow and steady, avoid big losses May need to hold to expiry 34 © Copyright Options Trading IQ. All Rights reserved. 34

IRON CONDOR TIPS, TRICKS AND Q&A

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