Overview: There are serious risks involved with some of the popular option trading tactics commonly being used and taught today. Here’s why Double Calendars and Iron Condors tend not to fare well given today’s typical market volatility.
A Double Calendar is another typical trade also based on your hope that the market does what you want it to over time. You gather some premium around the at-the-money strike. If all goes according to plan your profit return and your risk profile begin to converge.
If something unexpected and unwanted happens such as a large shift in volatility, you have a problem. A previously attractive trade with a promising beginning can turn into a draining challenge you must continue to grapple with.
Probably the most classic and popular income strategy is the Iron Condor. The Iron Condor is made up of two credit spreads, one on the put side and one on the call side. The intent and design is to collect some premium near the at-the-money strike that you can keep if the options expire worthlessly.
So, does the Iron Condor fare better than the other trades if the market experiences a sudden volatility change or the price moves significantly as time goes by? No, unfortunately, not really.
If you’re a week out from expiration and you’re near the limit, for example, of your put side spread – you might just want to close out the trade. You’ll likely take a hefty loss, but at least it’ll be behind you. This is preferable to losing your entire investment when the trade completely overruns your spread.
These are very common strategies that are used by most options trading education groups and advisors. The problem is that you’re left at the mercy of the market, hoping it cooperates, hoping price and volatility don’t change as time goes by and hoping you get to keep your premium.
There’s another way to trade where instead of worrying about making adjustments when you’re in a critical area and close to expiration and “panic time”, you can construct a trade that’s intended to be adjusted.
There are ways to structure trades so you can collect premium from them as time progresses, in a safe fashion, while you’re still a good distance away from the current at-the-money price. You can keep away from last minute crises.
These safer trades are the kinds of trading strategies that we develop and teach at San Jose Options.
We’ve taken these somewhat dated configurations, modified them, applied new rules in how to manage and adjust them, and the outcome is a much safer trade with very good returns that help you sleep at night.
If you think this kind of approach is interesting, take a look at joining us at San Jose Options and start enjoying what we call “Max Safety and Max Reward”. It’s a better way to trade.
Learn an innovative way to Trade Options through the apprenticeship options course of SJ Options. If you want to learn a safer way to trade, then consider their Options Mentoring Program.