Iron Condors – The Comfort Zone (3 of 8)
San Jose Options presents Iron Condors - The Comfort Zone
What happens to your "Comfort Zone" when trading the popular Iron Condor.
Most people focus on the probability being so high on this trade, but is it as high as it appears to be? Watch this series of videos and make your own conclusion.
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…the 30-40% probability that you’d be comfortable on this trade. This is one thing, I think, most option traders miss od they don’t care. Like in the previous video, I was saying that you need to decide what kind of option trader you want to be. If you want to be the high risk type that has to stare at your computer screen every day, then that’s one style. But if you want to be trading options and not worrying so much all the time and living kind of a stress-free life being able to enjoy your live, enjoy a vacation, enjoy your children, then this style is not for you.
Once again, this part of the graph is included in this 83% probability. This high probability, it’s really including a lot of high stress and a lot of risk; this whole area here and this whole area here. When we construct our trades, we really have to consider what lifestyle we want because once you get into investing large amounts of money, say over 100,000, then you really start to value that comfort. This becomes valuable. If you’re in this zone, it’s really valuable. These are just great tips and different ways to look. Let me show you something else.
Here’s something else that most traders do not consider or realize. People tend to think that iron condors are non-directional trading strategies. Have you heard that before, your iron condor is non-directional? Who’s heard that? Raise your hand. Everybody. Let’s think about this in a different way. Look at the market here over the last year. What I’ve done is I’ve kind of highlighted a couple areas. Actually this one should even really be included. I’ve highlighted a couple areas where the market is going sideways. It’s pretty amazing that people consider iron condor to be a non-directional trade because actually from coming over here, like I showed you, it’s very directional. You only have about a 35% chance of being comfortable on this trade. Comfortable and safe. The direction on this is sideways. If you look at the last year, this isn’t even going sideways, neither is this, but if you look at the last year, look at how many times the market actually goes sideways for 2 weeks or a month. Where do you see that happening? I couldn’t find one place. I put this square around 3 areas where it kind of went sideways but only for about 2 weeks. Let’s look at something else.
Look how many times the market went down. One, two, three, four, five, six, seven, eight, nine, ten, eleven, twelve, and then we’re coming up for number thirteen. Consider this, the market has gone down about 13 times, the market has gone sideways about 3 times and this is over at the last year. Look at up trends, one, two, three, four, five, six, seven, eight, nine, ten, eleven, twelve, thirteen; just about as many times as the down trends. In effect, the market has gone sideways about 3 times and they were all short moves, about 1 or 2 weeks. The market has gone up about 12-13 times and down about 12-13 times. Notice, these direction moves are longer, in general. Here we have an upward move, you could see it lasting quite a while. Here’s another one, here’s another one, here about 2-3 weeks. Look at this upward move here, one, two, three, almost like a month. Here you have quite a move to the downside. Here you have another, one, two, three, four, quite a long…