Trading, Overtrading, and Waiting Part Two: Overtrading & The Iron Condor
...continued from Part One
Thatís right! Overtrading is a constant temptation. Even though weívewarned about the dangers of adjusting iron condors before, peopleconstantly ask about this aspect of the strategy.
For therecord: adjusting trades as a matter of common practice is actuallyriskier than simply adding new trades! In other words:
Youíre alwaysbetter off putting on a new position that takes into account the presentmarket environment rather than trying to ìrepairî or ìadjustî everyold trade.
If you find yourself watching your positions and wanting totweak something here or modify something there, hereís a tip: DON'T!Instead, if you have at least 6 months of experience trading ironcondors, then try this:
Sell a call spread or put spread that is contrarian towhatever the market is doing that day.
Legging The Iron Condor
For example, if the Dow is up100 points, then sell a DIA call spread that is several strikes away fromthe ATM strike. When the index moves back down a day or three later,then sell a put spread that is several strikes away from the ATM strike.
Guess what? Youíve just legged into a nice iron condor position. Weshould add that this little strategy should be done with as fewcontracts as possible. After all, youíre not trying to establish a major position. You simply want to capture some market movement and avoid screwing up your otherpositions.
Of course, we donít officially endorse the notion of legging in to atrade that you actually care about. That's because itís far too difficult toaccurately call the tops and bottoms of market movement on a consistentbasis.
If that last paragraph is confusing or unclear, then donít worry. The onlypoint to remember is that when you have a few iron condors in place,leave them alone! Theyíll thank you for it...
Continued in Part Three - "Waiting & The Iron Condor"
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