Customer Reviews

Profiting with Iron Condor Options: Strategies from the Frontline for Trading in Up or Down Markets

5 star:		(15)
4 star:		(4)
3 star:		(1)
2 star:		(0)
1 star:		(0)

 

 

The iron condor is basically an option trade that involves selling and buying two out-of-the money calls and two out-of-the money puts in the same month for one stock or index. Actually, you are really putting on two vertical spreads, one on each side of the current price of the stock or index.

The author favors trading the SPX, RUT, and NDX mainly for reasons of liquidity and the fact that as European-style options you do not have to worry about exercise prior to expiration date. Interestingly, the back cover stresses the ability to earn consistent returns very month with "surprisingly modest risk," but the author himself states early in the book that this should not be considered to be an income strategy and then he goes on to stress that there are a lot of risks with this strategy. In fact as he explains, those risks make it imperative that the trader keep a watchful eye on both "wings" of the condor so that adjustments can be made as needed. This is definitely not one of those trades that you can put on and then just check every week or so.

Although many traders who use spreads typically like to leave their trades on for as long as possible in the hopes of keeping most, if not all of the amounts that they were credited when the trade was opening, this author actually recommends against holding trades open for this long. He definitely is more in favor of going for singles rather than home runs. For example, he claims that "the exit strategy that works best is to give back almost all of the credit. If you take in an initial 16% credit and keep only 3%, 4% or 5%, you're giving back most of the potential profits. How many trades have you made that can consistently make profits of 3% in a few days regardless of the direction of the market?" I see his point, but if you are someone who has only previously traded options from the long side, be prepared to change your way of thinking.

Those who have been involved in other types of spreads may already be familiar with much of the material found in the book, but those who have not been involved in selling options or in spread trading of any type will find this book interesting. If you read the book and decide that you're really not that interested in this particular strategy or type of trading, you won't have to waste much of your time since the book can be finished in one sitting.

Most books on options try to be all things to all people by starting off with a basic education in options and then proceeding to give the basics on many different trades. This book drills deeply into a strategy using condors that is largely rules-based and that gives you good methods for adjusting the trade and preserving capital if the trade isn't working out as planned. It is a fully detailed strategy for profitable condors.

While the book does spend some time on options basics, most of the focus in this area is on "the Greeks." The book rapidly moves into how to put on the trade, when to put on the trade, how much credit you should get for it, when to get out of the trade and how to adjust the trade if necessary. It reminds you that having a plan for exiting a trade is often as important as having a plan for making the trade to begin with.

I waited until I put on a few trades with this approach to see if my opinions would change. So far, my trades using this approach have worked out well.

If I had one minor complaint with the book it is that it should be a little more forceful in its admonitions that, in a single position, you are generally risking $2100 to $2200 to have a maximum profit $300-$400, assuming the position were held until it was closed. Since you're not holding until the close, your typical upside in the trade is more like $100-$150. The point is, if the market moves against you quickly with this trade, you can lose your shirt very quickly. That is a low probability event and the author shows how to mitigate these risks, but that doesn't change the fact that you may occasionally suffer a devastating loss (like with a quick drop in the market and a surge in volatility, both of which can work against you simultaneously). Accordingly, if you can't pay careful attention to the market to manage the position, this would not be the book for you.

I'll give this book on options trading high praise. It's practical, and I have already begun putting the writer's trading philosophy to the test in the markets. Benklifa describes a philosophy and a set of rules or guidelines towards trading iron condors that is quite different from anything I had heard about previously. As I was reading, it kept occurring to me, "this can work..." which was really exciting. An iron condor is a non-directional trade seeking to make money either from a drop in volatility or from a lack of trend, or both. Yet the writer's trading philosophy can be implemented using directional vertical spreads also. For example, a trader could simply sell an out of the money vertical in the direction that the underlying is not expected to move. The "trading journal" in chapter 3 was especially valuable as it fleshed out the writer's thinking as he put trades on and adjusted them. The only part of the book that seemed to deserve more discussion was on adjustment methods. One method that was discussed towards the end of Chapter 3 was rolling farther out, the wing of the condor that is getting too close for comfort as shown by the deltas. However this will usually cost a debit to make the roll, thus reducing the credit on the whole trade, perhaps reducing the credit significantly. One adjustment that was not discussed in the text would be to follow this up by selling another wing in the "safe" direction. Although this adds more risk to the overall trade, it pulls in a credit, and possibly makes the rolling of one wing, farther out, less expensive. Also, there are other adjustments that are not covered in the text. However this book is astoundingly useful and practical. Five stars, and well deserved!

This book is for those that are familiar with trading stock options and the mechanics of those options. You need to understand the "Greeks" involved in option valuations to understand this book. The author likens option trading to a chess game while stock trading is more simple like flipping a coin. In stocks they either go up or down, in options they are valued based on volatility, time until expiration, whether they are in or out of the money, and also the odds of them going and staying in the money. Options have both intrinsic value of what they are worth and extrinsic value of what they could be worth before expiration. If you understand these concepts this book is for you, if not you may need to learn these elements of options before reading this book.

The author states that condors are the most consistently profitable trade you can create, with potential annual returns reaching 30%, 40%, 50%, or more if put together correctly. Condors is a market neutral strategy, you just want the options you write to expire worthless, your danger is strong trends that put one of your wings in the money are close to its strike price. The best way to trade condors is to not have an opinion, trade the math. Condors involve selling and opening two sets of options out on each side of a index or stock. You want both sides to stay out of the money and profit from time decay. These options should have deltas of about 10 when you open them and be closed if the delta climbs to over 25.

"Your goal is not to stay until expiration but to stay until you get the desired return."

"The implied volatility of an at-the-money call option is the market's collective prediction of how much a stock should move in a day, week, month, or year": based on how far out the option is.

The cost of volatility in options is both a fear indicator and how much traders are willing to pay for a hedge. When trading condors you must trade higher priced stocks or indexes to have enough prices for options to sell them far enough out to be profitable and be able to adjust the condor. Trade options that have enough liquidity so the bid/ask spread does not harm or eliminate your profits by being to big a spread and losing when you get in and out of the condor. You also want a stock with a big enough stock float that it is not easily manipulated by large investors. The best indexes to trade are the S&P 500 (SPX), NASDAQ (NDX), and Russell 2000 (RUT).

Getting into a trade and getting out of a trade is what condors are all about. However trading condors is risky and you have to know how and when to adjust them when a strong trend is coming toward one of your wings and your delta is expanding on one side. You must be patient when trading condors, the only time you should be impatient is when your profit target is hit, you should take the profit and not get greedy for more. You must prepare a trading plan in advance as a reaction model, not a decision model.

Condors win when the market stay range bound with in your wings long enough to make a profit, and you take that profit when your goal is met. Condor profits come from the time decay of Theta in your positions.

This book shows many examples of how condors should be traded and the author manages millions of dollars for clients and trades condors for them. This is not theory this is what he does every day.

I highly recommend this book to those option traders ready to profit from time decay by selling out of the money calls and puts like lottery tickets to the new option traders that are just not doing the math on probabilities. You can make very nice returns. I trade a system similar to this one and do very well.

This book is short and well laid out, and it gives a fairly good description of condor trading without any unnecessary complication. From the table of contents I thought a great deal of time would be spent discussing risk management, and there was, but I thought these sections were a bit lacking. On the whole, though, it's one of the better options books I've read lately.

Books on the use of options for market-neutral strategies are readily available. Benkilfa doesn't add much to the existing literature in terms of techniques or specific trading strategy. However, this book stands out in two aspects - clarity of explanation, zero hype. In fact Benkilfa has advise for those who want to use condors as an income strategy ("dont do it") and explains the rationale convincingly. As a frequent trader (mostly selling time premium via credit spreads), I have been intrigued with other spread strategies for developing my trading skills. This book's clear discussion on the key factors on selecting the underlying (index v/s individual stocks), setting up the trade, selecting the expiration/strikes, etc provide a reader with an excellent decision framework. Of course, its effectiveness is purely dependent on how one utilizes the framework. Moreover, the author points out the difficulty in back-testing any of these methods as they can be (should be, in some cases) adjusted.

The analogies on horse race employed throughout the book is quite good and helps reader easily grasp his key points. The book could have used a short introduction to the structure of the condor trade to orient the reader and perhaps a comparison of different spread strategies to give a better appreciation of the condor structure. Perhaps the author feels that a reader is familiar with them. Nevertheless, a clear, concise discussion of condor trading strategies that can be the main source for a self-directed condor trader.

There are so many books on options, written by many great people from the trading floors, to coaches, to money managers. But Michael only trades the iron condor for his fund. So learning from someone who has to answer to clients is great, as long as he/she can write. Michael does both very well. He really opened my eyes to the definition of conservative options trading. So many people love Iron Condors because they are high probability trades and thus can win many times in a row. What usually happens is that they find out that the market can trade against you and if you are not well prepared you can lose all of those prior wins in a flash.

Michael's book teaches how to "go for singles" and then get out of the market. Shoot for smaller returns but compound those over time. You do the math, don't you think you could start a hedge fund if you made 3% every month? You would have people lining up to give you money! So if you take this approach in your own trading account, you can make solid returns. The only problem is, you won't be trading much. According to Michael he is out of the market more than he is in it. This is boring :). So if you want thrills in your trading, don't look here. But if you are looking for much less stress and volatility in your results, this book should help.

Michael does a pretty good job outlining his rules, although a few could be a little more clear but overall, this is a well written book with lots of examples. I will also say that I put on one of his trades the day before the Japan Tsunami and the trade never really went against me. I was out in 7 days with a 7% profit. While this is just one data point, it did give an indication of how this can handle a sudden jump in volatility. Not bad at all. I also did a strategy for those looking for a bit more frequency by trading an earnings play and made 9% in one day. Although I would not recommend this trade if you can't make it small enough not to hurt your account if you are wrong.

Lastly Michael wrote this specifically to help the retail trader like you and me. The money is thus well spent on this book.

Bottom line, this book belongs in your bookshelf if you take your options trading seriously. It is not complex, it is very conservative and can make consistent money. Thanks Michael! Mike from seriousoptions.com

I am a novice with options so I know that if I now feel even remotely proficient with them and willing to attempt to trade condors then this book was a good buy.

It is a short book with only 4 chapters. I spent more time trying to learn and understand the first three. The last is titled "Day Trading Condors", and I have learned enough in my stock trading that I do not have the time nor the will to do the work and constant supervision of my positions make short trades.

The author states 2 initial caveats the reader should note:
1.Condors by their nature are high risk strategies.
2.Do not depend on condors as a source of income like dividend paying blue chips; they are trades.

Chapter 1. takes you through the basics of options and presents the pitfalls you need to be aware of. It then gives you the four desirable criteria of a stock for trading condors.
1. Large number of strike prices so you can trade far out of the money options.
2.Reasonably high-priced underlying stock
3.Liquidity in open interest and volume.
4. Volume not dramatically affected by news such as earnings reports.

Chapter 2. Tells you how to do the two really important steps in trading condors, getting into a trade and getting out. You want range bound markets for a long enough time with diminishing volatility to make the profit you seek. The author goes over the many possibilities in a fairly detailed manner.

Chapter 3. Covers the mental attitudes needed in order to be successful.
He then goes over actual trades and shows how to keep a journal of several example trades. In the process the book tells you to trade the math-watch Deltas, when to make adjustments of the trades, and to trade the market-not what you think the market will do or should do.

Chapter 4. Covers selling condors prior to an expected news event such as an earnings surprise. It then gives examples of how to do this. As I said this is a speculative trade which I would probably not try.

I would want to read and reread this book before putting my money at risk, but I think that with some study of the stocks I would be willing to get my feet wet.

If you are new to options trading, then this book is not (yet) good for you.

But when you have a fair knowledge of options, know the various possible strategies, and more importantly if you have months, or years, of experience in options trading, then the true value of this book is revealed at every page: it doesn't only make an excellent analysis of the many aspects like liquidity, volatility, the greeks and the best instruments to trade (namely the SPX), but dismantles as well myths like the "time decay" advantage typical of the last month before expiration, or the applicability of an iron condor only to sideways markets.

And if the first half of the book wasn't enough in itself, the author then gives you the most detailed explanation on how to open a condor, adjust it if needed, and then close it. No other book, or course, that I've read or attended to has ever been both so deep and so practical. You can really tell this book was written by a real trader for traders. I most highly reccomend it.

If you understand and trade condors this is an excellent read to further your knowledge.
The author puts a different view on basic condor "rules" Worth the read. I am on the second time around with my
marking pen....Good points made.