Trading non directional strategies like Iron Condors can be extremely profitable. Iron Condors now make up 100% of my trading style. Think of non directional trading as fixed income trading. Its basically the same thing. Before making the trade, you know exactly how much you will make and how much you will lose and you can create trades where the probability of success is higher than a naked directional trade.
In this article, I want to talk about the 5 most important things to look for when setting up an Iron Condor.
1. Is the overall Market Flat?
When the market is not trending straight up or straight down but sideways with momentary fluctuations, this could be a prime time to trade an iron condor . These opportunities present an amazing time to generate a trade that absorbs that value of boring moves like that.
2. Is the stock Range bound?
Is the stock bouncing between support and resistance? While the market is going up and down, you have certain futures, stocks or ETF’s that are going sideways and doing nothing. Dont just sit back and watch it happen, just in and make make money by placing an iron condor around that ticker.
3. Does it have good Probabilities?
Most traders look at probability graphs when deciding if an iron condor trade is appropriate. They will also have a minimum probability of success that the stock should have for them to want to enter the trade. I require at least 75% of Probability of Success before I take a trade. Your likely hood of success is more important than the amount you’re getting back in profit. Dont be greedy. These probabilities are highly accurate. Get that $1,000 at 75% and leave that $3,000 at 30% alone. You’re not likely to get that.
4. Can you make a decent return by selling far out of the money options?
This is where implied volatility comes in. Some stocks, ETF and futures options do not enough IV for you to really get excited about. Options that will have significant value outside the money are typical stocks with high IV. They are expected to make big moves. This is why we should always be making sure that we’re collecting at least 20% on our money with every trade. Anything smaller than that is probably not worth it. You’re already going to have to ride an emotional train being in an iron condor. Make it worth it.
5. Do both ends of the condor give you a good premium?
An iron condor is made up of both a bull put spread and a bear call spread. One thing you should look at is how much credit each end is bringing in. If 1 end is bringing in almost the entire credit you might want to look at not doing an iron condor, but doing a simple spread instead. If you have a small account, spread the wings on your spread wider to take in more credit.