Today, I had an interesting conversation with an option trader who is still searching for the magic formula to making consistent returns with option trading. He said many things which were so familiar to me.
The topic that really hit home for me was when he mentioned “Non-directional option investing doesn’t mean we should generate return on investment in each and every direction. It means that we generate a profit if the asset doesn’t move in any direction. In a few words, it’s actually a directional strategy, sideways.” This is absolutely the truth, and most investing programs say that it’s easy to manufacture a profit with options simply because we can generate money for each and every direction. This is true in some viewpoints and false in others.
Those of you trading Iron Condors know what I am talking about; especially if you are trading the Condors that most courses and books teach. If you are trading this strategy in 2009, you probably aren’t making anything. The reason being that the Iron Condor is just as directional as most option trades only that its direction is sideways. For some, it’s just as hard to predict a sideways move as it is up or down.
I have had many calls over the years from people losing huge chunks of their accounts trading credit spreads and condors. They all say the same thing… “I was doing great for several months, and then all the sudden I lost nearly my whole account in one day.” I have heard this story over and over again.
This is exactly why I don’t teach traditional Condors and Credit Spreads. If you are a few days from expiration, and the RUT is right at your short strike, then you are trading the way most people trade this strategy, and soon you’ll be telling the same story to your best friend, and you’ll be hiding the truth from your wife! You laugh now, but you won’t be when it happens to you. Another problem with this style of trading is that the stress level is so high that it really ruins your life.
Well, we’ve addressed this aggressive trading style at San Jose Options Mentoring. We’ve redesigned Condors and Credit Spreads. Our technique gives the underlying more room for the price fluctuation, giving us breathing room in our trading as well as in our lives. We find the less adjustments we have to make, then the more we bring home at the end of the month.
Besides teaching a safer way to trade Condors, we’ve also developed techniques to lock-in our profits on them. Most option traders exit their trades when they make a profit, but we can lock-in our profits and stay in the trade.
Furthermore, if we ever have a Condor move against us, then we have developed yet another technique which gives us a free bonus trade! So, even though we may have a bad month once in a while, at least we get an excellent, free trade from it where most traders just take the loss and move on.
So there you have it! Whether it’s a winning trade or a loser, we have really developed some nice trading tactics that can improve your personal trading immensely.
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