Please scan the list of questions below – it’s actually much, much faster to see whether your question has already been answered than to wait for an email response from us. But if your question isn’t answered here, then ask away.
- I’ve never traded options, spreads, or iron condors before. Will I be able to follow your trades?
- Do you recommend any books on options trading?
- Why don’t you trade iron condors on individual stocks?
- What about commissions?
- What’s the minimum account size necessary to follow your trades?
- You trade 3-4 positions per month. Do you weight these positions equally?
- My purpose in trading is to build the size of my account.
- My purpose in trading is to generate a steady monthly income.
- My purpose in trading is to reduce the risk of my other longer term investments, like stocks, mutual funds, and ETFs.
I’ve never traded options, spreads, or iron condors before. Will I be able to follow your trades?
Yes! The great thing about our system is that it is so flexible, and requires no prior experience with iron condors or options trading in general. For a more thorough overview of how we trade, see our Strategy page.
Do you recommend any books on options trading?
Yes, click over to our Recommended Reading List. If you have a book you’d like us to review, get in touch via the Contact page.
Why don’t you trade iron condors on individual stocks?
Because indexes are less volatile than individual stocks, which gives us a tighter range to work with – and hence a greater probability of success. Individual stocks are almost always more volatile than any index, in part because they’re subject to so much “event-driven” movement, like earnings reports, the actions and fortunes of competitors, management shakeups, etc. These sort of events can trigger an unexpected dramatic price swing at any time, and can easily push the price right past the range of a condor trade. So we only trade iron condors on indexes to avoid those kind of unforseeable shifts.
What about commissions?
We don’t assume any particular commission structure in our performance numbers, for several reasons: 1) There a many different commission rates out there, and we’re not going to arbitrarily pick one; 2) commissions have a much different impact on smaller accounts than they do on larger acccounts, in most cases, so there’s no one correct way to assess the likely impact of commissions; 3) we’re in the business of publishing our strategy and tracking its performance, not providing portfolio management services; our members are mature and responsible traders who are capable of managing their own accounts, including assessing the impact of commissions.
We stress the importance of execution, too: novice traders often get preoccupied with up-front transaction costs, and ignore the less obvious but equally importance issue of execution. If your broker charges an extra $40 in commissions on your 10-lot trade, but gets a better price by 0.05, they’ve saved you $50, for a net $10 gain. As a rule of thumb, you’ll get what you pay for when it comes to execution, so be careful that you don’t nickel-and-dime yourself into a low-commission, poor-execution situation. It’s extremely important to get with an options-friendly broker if you aren’t already – someone like Optionshouse, thinkorswim, OptionsXpress, or eOption (and there are others).
What’s the minimum account size necessary to follow your trades?
We can’t legally give any personalized advice about account size or what risk profile is appropriate for you. But we can say that an account with less than $5000 will face decreased percentage returns as commissions and slippage take a large portion of profits.
You trade 3-4 positions per month. Do you weight these positions equally?
Yes, our view is that positions should be equally weighted. There’s no discernible edge that we’re aware of in weighting positions based on entry date. And since the intent of putting on multiple positions is to smooth out the aggregate risk curve of our portfolio, it’s important that subsequent trades have a similar or equal weighting in order to maximize the balancing-out effect.
My purpose in trading is to build the size of my account.
Option spreads like iron condors are a great way to build capital because they have two built-in features that you can’t get by trading stocks alone: 1) leverage – every option contract is worth 100 shares of its underlying asset, which enables you to capture the price movement of an asset with a much smaller outlay of capital; 2) hedging – option spreads like iron condors enable you to define your maximum upside and downside before you initiate a trade, so you know right from the start exactly how much you will win or lose on any trade. Defined-risk trades like these protect you from the infinite downside/upside risk that is inherent when you buy/sell stocks.
My purpose in trading is to generate a steady monthly income.
Then you’ve come to the right place. As our Strategy page explains, the goal with iron condors isn’t to hit homeruns every time we trade – instead, our goal is to make a lot of base hits that will add up over time. This is the same motivation behind bonds and income funds: to reduce risk and achieve consistent, measured performance.
My purpose in trading is to reduce the risk of my other longer term investments, like stocks, mutual funds, and ETFs.
Options spreads like iron condors can play a valuable role in any portfolio. Even if you only commit a small amount of capital to our strategy, you can use options to smooth out your returns and reduce the volatility inherent in investing. Let’s say that over a three-month period, the S&P 500 Index loses 3% of its value. If your investment portfolio is long the S&P (through the SPX, SPY, or an index fund), you’ll be fully exposed to that downside risk. But if you take that same portfolio and add our options spreads into the mix, you can still make money over that time period by profiting from the relatively range-bound nature of the index.
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