Grind Out Profits In Slow Markets With Iron Condors

Posted in: Trading Article

Iron Condors For slow market trading

“The market has to go lower from here.”  “We can’t continue to make new all time highs on a daily basis.”  “There is no way I’m playing the market to move higher from here.”

These are all comments that we’ve heard from traders  pretty much since we opened Netpicks over 20 years ago. The problem with these statements is that the market really doesn’t care what any of us think it should do.

The market will do what it wants.

As a result, it’s crucial for us to trade based off price action on the charts instead of our personal opinions and especially the opinions of every analyst online or on t.v.


Only 2 Plays In The Current Market Conditions?

Looking at current market conditions it might seem like we have 2 options:

  1. We can continue playing the market up to new highs on a daily basis
  2. We can blindly buy puts expecting the market will move lower

Neither one of these sound appealing to me.

However, are these really our only 2 options?

So many times traders are programmed that they have to pick market direction in order to be active. This just doesn’t have to be the case.


Profit Without Having A Directional Bias

When trading options, there are trade types that allow us to be active without having to make a strong directional bet. For example, in our Options Academy training room last week we took a look at TLT which is the Bond ETF. Instead of buying a long call or put option to place a directional bet, we decided to take a look at Iron Condors.

While the name can be intimidating it really is a simple trade. All we are doing with Iron Condors is selling an out of the money call spread and an out of the money put spread at the same time. In doing so, we are betting that TLT will stay inside of a range or what we call our “Profit Window”.  The nice part about the Iron Condor is that it is a very forgiving trade.

We don’t care if TLT moves higher, lower, or sideways as long as it stays inside of our Profit Window we are fine. In our TLT example, we decided to go out to the August monthly options and sell the 141/142 call spread and the 135/134 put spread at the same time.

In this case we were selling the 141 call and buying the 142 call to make it a risk defined trade. On the put side we sold the 135 put and bought the 134 put to make it a risk defined trade. We collected $.52 or $52 per spread to put this trade on.

TLT Iron Condor Trade Details

The $.52 that we collected to put the trade on is our maximum profit potential. Our maximum risk is $.48 (the difference between the strikes ($1) minus the credit received ($.52) when putting the trade on).

To calculate our Profit Window we need to get our break even points. There will be two break even points when trading an Iron Condor.

Upside Break-Even Point

We calculate the break even point on the upside by taking the short 141 call strike and adding in the $.52 that we collected when placing the trade. This puts the break even point on the upside at $141.52.

Downside Break-Even Point

On the downside, we take the short 135 put strike and subtract the $.52 that we collected when placing the trade. This puts the break even point on the downside at $134.48. As long as TLT stays between $141.52 and $134.48 we can make money.

Iron Condor Break Even Points On Chart
Iron Condor Break Even Points On Chart


5 Ways Profits Can Be Made With Iron Condors

Even though we give up the home run profit potential when placing trades with Iron Condors, it can be a great trade because of all the different ways we make money.

  1. We make money as time decay adds up which means every day we hold the trade we make more money.
  2. We also make money if volatility decreases.
  3. We make money if TLT moves up, down, or sideways as long as it stays inside our Profit Window.

This gives us 5 potential ways of making money on this trade. When buying a call or put option we only make money if the stock moves higher or lower and the stock has to make that move in a hurry.


Trading Options Gives Us Massive Amounts Of Flexibility

While the current market environment can be very frustrating due to the grind higher on very low volume, you have to make sure you are trading products that give you flexibility. The options markets allow us to do just that better than any other product out there.

The Iron Condor might not be the most exciting trade type in the world, but it gives us a nice way to make money in a slow dull market. As a full time trader, this is what I’m looking for in the long run. We would love for the market to make big moves all the time but it’s just not realistic. Iron Condors are great because I don’t need a strong directional opinion on the movement going forward. I just need TLT to stay inside of a range.

This takes a lot of the pressure off my trading.

Don’t get stuck spinning your wheels during slow market conditions. Challenge yourself to find new trade types that will better reflect current conditions. If you do so, your results will improve in a big way. Having a diversified list of trade types will give you a much better equity curve in the long run. If you are looking for ways to improve your trading in a slow uncertain market environment, the Iron Condor is a great option.

Options trading has become very popular over the last few years.  Netpicks own “Options Guru” Mike has put together a hot list of some of the best names to trade in the Options market.  You can click here and download your free hotlist to see what names Mike has been piling up the winners with.

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Trader at Netpicks
Shane his trading journey in 2005, became a Netpicks customer in 2008 needing structure in his trading approach. His focus is on the technical side of trading filtering in a macro overview and credits a handful of traders that have heavily influenced his relaxed approach to trading. Shane started day trading Forex but has since transitioned to a swing/position focus in most markets including commodities and futures. This has allowed less time in front of the computer without an adverse affect on returns.

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