Note to new readers: This is a regular update on the status of our XJO Iron Condor (Mark III) Model Portfolio. Please read the Trading Plan first in order to understand the objectives and the rules for trading this model portfolio.

August was another winning month for our iron condor model portfolio. We hit our 50% profit target in only 14 days so our August trade was closed by July 27. The gross profit for our 5 contract trade was $1200. The performance of the XJO Iron Condor (Mark III) portfolio as at August 2015 is $2250.

I am enjoying trading the Mark III iron condor strategy. It is pretty mechanical and requires little maintenance which is suits a retail trader like myself who does not wish to spend hours watching the market. Collecting more premium up front automatically reduces our maximum loss. Managing winners at 50% reduces the time we are in the market compared to holding to expiry, like we did in our first iron condor model portfolio.

I frequently get emails from readers who ask why I trade iron condors instead of strangles. Tastytrade has conducted a number of interviews with Karen the Supertrader who makes a lot of money every year trading far OTM (e.g. 5 delta) strangles on the SPX. While I have a lot of respect for Karen’s achievements, I do not believe her strategies can be easily copied by individual retail traders as it requires the positions to be closely watched and frequently managed. She works with a team of 6 traders who take turns to watch and manage their positions at all times whenever the market is open. This is not something we can do if we have a job or if we simply want to enjoy other activities during market hours.

The purple line in the P&L chart below shows what can happen if you sell 6 delta strangles like Karen but do not actively manage them like she does. Money management is also very much harder as the margins for undefined risk trades are not fixed and will increase as the options go further ITM and when IV goes up. The chart below is created from a back testing study. In real life, you will most likely get a margin call from your broker who will liquidate your positions well before you hit the 600% loss. This is why I still prefer to trade defined risk trades like iron condors and butterflies.

Source: DTR Trading SPX Strangle High Loss Threshold

I just opened our September iron condor trade today. I will provide a write up of this trade in my next update in September.

Disclaimer: This post is for educational purposes only and should not be treated as investment advice. This strategy would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek investment advice if required.

Looking for something?

Use the form below to search the site:


Still not finding what you're looking for? Drop us a note so we can take care of it!

Visit our friends!

A few highly recommended friends...

Archives