Today's podcast will be very important as we help you understand how to calculate breakeven prices on iron condors and other risk defined strategies the correct way. Plus, we'll walk through a multi-month adjustment to an existing IWM iron butterfly in which we nearly doubled the credit received by rolling contracts to the next expiration period.
Iron Condor Videos
What happens if the stock moves just a little bit beyond those strike prices? Sold the call spread 25 cents the call spread. Then also sold the put spread for 25 cents.
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Together this gives you a collective credit of 50 cents. This collective credit now moves your break-even point out 50 cents on either end from your short strikes. That means the true break-even points are now Then you would buy the same, call and 94 strike put. This will generally have a very similar overall potential probability of profit.
Mike And His Whiteboard
You effectively get a very similar payoff diagram as far as break-even points, it's just the distribution of your profits are a little bit different. No time to read the show notes right now? We've made it incredibly easy for you to save time by giving you instant access to the complete digital version of today's show.
Today's question comes from Massimo, who asks:. That gives you room for error. You may not guess the exact top or bottom, but the market still needs to make another big move to cause you a loss. Going back to the previous example, In the event that the market threatens your Bear Call position, you can adjust it further up.
If you were to wait for all three conditions to be present, then you would only end up trading 3 or 4 positions in the year. Those would be very good trades and potentially profitable and easy to ride, but very few for many traders. In order to mitigate this effect and give myself some more trading opportunities I tend to relax the rule in certain periods. For example during historically bearish periods, I would only need two of the three rules to be true in order to sell Call credit spreads. But I would expect to see the three conditions fulfilled for selling Put Credit spreads.
Managing the Risk of Iron Condors
Likewise, during December and January I would expect all three conditions to be met in order to sell Calls, but I could relax the rules expecting only two of them to be met in order to sell Puts, because it is a naturally bullish season of the year. That means that is the amount of money I put to work. You can find all the details of the trade here http: I entered the trade for a 0. IWM had rallied from 77 to almost 83 in just two weeks; all the overbought conditions were perfectly aligned.
Those are clearly odds in favor of the trader. You have an edge, an over time it will express itself in the form of a healthy up trending equity curve. The trade turned out to be a winner, where I kept the 0.
If you could do that only 3 or 4 times a year you would be ahead of most traders out there including institutional traders. Be able to do it 3 or 4 times a year and you will be ahead of the majority and with low trading costs needed.
For other trade entries and analysis you can visit http: Without a doubt, the toughest part in order to be able to carry out this trading style is the need for patience. Patience is a necessary virtue for trading this system.
- Iron Condors: Risk Management.
- Download Trading the Iron Condor Confidently ebook.
- OAP 136: How To Calculate Break Even Prices On Iron Condors & Iron Butterflies.
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Most of the time you will see traders discussing ideas and going crazy on twitter and forums talking about Apple or Netflix or any other trendy stock at the time, and you will have to restrain yourself and stay put.