Ep 191: Why Trading Iron Condors is Easier than Picking Stocks

July 5th, 2018

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I will show you why trading condors is easier than trading stocks.

I teach you all those things and more in my new Iron Condor course -> Click here to learn more about it <-

You might be thinking well you're kind of crazy to say that because trading options is much more difficult.

Overall, yes it is more complex when you look at overall all the components that go with it. It's much more complicated to go ahead and trade options because you're looking to learn and the learning curve and the amount of knowledge you have to learn to trade options is much more so than you have to learn to trade stocks. But in the end once you have that knowledge it actually becomes easier.

Think for a moment when you've learnt to ride a bicycle. You're trying to go uphill and you're just brand new to riding a bike.

As you're learning to ride a bike and you kind of go uphill on those one gear bicycles, it's much more difficult to go uphill. Simply because you don't have the extra gears to go from low gear to high gear and switch based on the conditions.

It's much more difficult to actually learn ride a mountain bike or a bike that has gears and shifts and go uphill. But once you've learned how to use the gears, it makes it much easier to go uphill.

This is what option trading is really like.

Initially, it may seem like it's much more difficult. You're trying to climb that mountain. You're trying to go uphill. But that's because you don't know how to shift gears. You don't know the techniques that you need to use. But it is much easier once you do know how to use it. It's much easier to go ahead and trade options or iron condors than to trade stocks, at least if you're more actively trading.

Let's take a look at how this applies overall

I want to share with you another example here of why it's really much easier and why you can really do this.

It's just really about giving you that extra little bit of knowledge and that's really what our course covers is it's giving you that extra knowledge - getting you to understand how to use those gears appropriately.

When we look at picking stocks overall and compare this to trading stocks, you can see that as we take a look at Apple. Do we know for a fact that Apple is going to go up tomorrow? Next week? Next month? Or next year? It's very difficult to know and as you start looking through this list of stocks. We're trying to pick out some stocks. Which ones are going to go up? And which ones are going to go up the fastest?

Now that's typically the way you make the most money. Picking the right stocks at the right time and letting them run higher. But it's very difficult to do that because you really don't know which way a stock will go.

Let's take any stock for example. Let's take a Microsoft or a Netflix okay let's go with a Microsoft.

Do you think that you could pick a range? In the next 30 days? 60 days?120 days? It's up to you what range you want to choose where that stock will fall and land on.

Well, let's say you choose a range somewhere in between. You can choose a range maybe between 110 and 90. Could you choose that? Could you go ahead and make that choice and decision? For most people, yeah, they could go ahead and choose that decision.

What about if you think well it's been heading higher, maybe you'll choose somewhere between 95 and maybe a 115. Maybe you'll choose a little bit of a higher range. Other people may go ahead choose 105 to 90 or even 87. Maybe you'll choose a little bit of a lower range.

Don't you think that's a lot easier than just choosing a stock?

Stocks do have their own place in investing. When you go ahead and build out a portfolio. They're more of a longer-term investments where you kind of set it and forget it.

But when you look at active trading. When you look at trading options. For example, it's much easier to trade or choose a range than it is to say hey this stock is going to head higher or this stock is going to head lower. In that case that stock needs to move.

But in this case, if you're looking at a range while that stock just needs to hit somewhere in that range, in that bull's eye.

Most people they get a little bit confused about how you can do this or how you can trade a range. All you're really doing is selling two verticals or selling contracts on these ends or area. Which is another word for insurance. You're insuring the stock at higher prices and insuring it at lower prices. This is how this works.

You can do this on any popular company that trades options, like Netflix. Would you think that Netflix is going to be higher or lower in the next couple weeks? Well you really don't know. There's a lot less certainty in that than to choose a range for Netflix in the next couple of weeks.

Let's say somewhere between 480 to maybe 340. Now that range is a lot easier to go ahead and choose. You might think okay well Netflix is a little extended and now it's acting weak, so maybe it's 450 and 300. You might choose a lower range or maybe you believe in the stock and you say okay well maybe around 360 and 490. You could choose a little higher rate. So that's a lot easier.

Take a look at how you can really do this and do the setup.

So, let's say we go to Netflix and we're kind of neutral on the stock. Now I'll go ahead and choose my IRA one, just so it's clean.

You can see right here we can go 45 days out. So here's our option spreads. I type in the ticker symbol. Then, I would choose if I want to go 45 days out or for a shorter duration. That means I get less width for my time value. Meaning, the closer you go in time, the less money you make but the stock can wiggle around and move quite a bit.

Let's just start out with 45 days as an example. We'll go out let's say - you can go 320 and maybe 450 in the next 45 days. I'll go ahead and sell a vertical at the 320 and buy one back at the 310. Now I'm directionally-biased.

That would be similar to a stock and let's say around 450. Again, we'll sell a vertical over here and we'll also go ten points. We're just setting up kind of a spread.

You can see that in the next 45 days, as long as that stock is between 320 and 450, I go ahead and collect $294 on $700 of investment. It's a pretty good return on investment.

When you look at this and you say, can I choose a range that the stock will move in? That's a lot easier than choosing stocks. Absolutely! It's a range. You're not looking for exact movement because you can move down ten percent and still make the same amount of money. You can move up ten percent and you still make the same of money. That's a lot easier.

Now, let's say you think well things are going to be worse. You could give yourself a little more range on the downside. I go ahead and go to the 280 and over here we'll go to the 290. I've created more room on the downside. I only make $227 overall on $773 on the investment, which is still pretty good.

I make a little bit less but I have more room so it's a give-and-take relationship in the market.

You can see now that's means to drop to about 290. It needs to go down all the way to the April lows for us to lose out and the upper range that we're in is right around 450 460.

You could play this range right there in that stock in the next 45 days. That's a lot easier to do than just choosing a stock and trying to manage that position.

Many people get tripped up with where to make an adjustment. And it's again going back to that bicycle riding concept. It's about learning how to shift gears. In this case, you might say, we got this box, where do you make that shift? Where do I make that adjustment? Where do I make those tweaks?

You could say you don't understand where to make the tweaks. By doing things time and time again, you'll get that experience to learn where to make that adjustment.

But if you actually look at this is the ceiling, this is your floor, and this is your wall. When you have your wall and you're looking to paint your wall. You take out a roller and you're trying to paint your wall. You give a roller to a kid. He paint things all over the place. He might drip on the floor. He might go on the ceiling. He might move to another wall. If you have kids you understand the concept.

If you paint your wall, you're slowing down as you're starting to reach a little bit higher or closer to the ceiling. Because maybe that ceiling has a texture. Maybe it's white and you don't want it to be a colored kind of ceiling.

Again, as you go up, you're slowing down and that's where you would make your tweak and your iron Condor or an adjustment. As you go down closer to the ground, the same thing.

As you're reaching this level, we'll make a tweak because we're closer to our danger zone. We're getting closer to an area where paint could spill or paint get into areas we don't want.

This is what you do with options when it comes to iron condors. You're looking at that range and as a stock is behaving in a nice range for you, you could paint and go wild and crazy and not worry about it. You're not worried about hitting the baseboards or the ceiling because you got a lot of room.

But as you're getting closer there, you're watching intricately to make sure that the blue color doesn't go on your white ceiling. And that's what you do when it comes to iron condors. This is where you make those adjustments - the tweaks. Going out and closing out some of these positions or reducing those positions.

This just shows you how much easier it is when it comes to knowing and understanding the trade of an iron Condor. It's not about finding the perfect stock, you could trade the same stock over and over again, all you're doing is you're looking at that range. When things get a little bit tight on a certain area, you need to make a tweak or an adjustment.

You might go ahead and add a little more positions on one side. So now you'll become a little more positive or bullish on the stock. Or you might do it a different way where you're a little heavier on the calls where now you're looking more at a downside move.

You have more risk - you're adding favorable risk things that have worked out for you very well on the upside.

This is what it's all about. Tweaking your prices and ranges and learning how to deal with those.

All you need to do when it comes to trading iron condors is really picking a range

It's not about choosing the right stock. You could trade the same stocks time and time again, as long as they're trading options. You're choosing the range.

Yes, they are more complicated just like riding a bicycle uphill with gears is more complicated. But once you learn how to shift the gears, once you learn the appropriate way to do that, riding in the mountains makes it much easier than when you have just a single gear bicycle.

And that's really what it's all about when it comes to trading options. When you get that little bit of extra education, you can now see that you can make money through time decay and time value. Because you're selling insurance.

With time, the white line which is the current line or today's line gets closer to the Green Line and you're collecting this theta this premium from your decay.

Can you get out of the iron condor earlier?

Absolutely! As time gets closer and you're still in that sweet spot, you can still get out early if you want. Then you can reset and put on another iron Condor another month out or two months out if you like. Because you're collecting that premium. You're collecting that data from that time decay. All you need to do is choose a range. You don't need to choose a stock. You don't need to wait for one to get in. It doesn't matter if you get in a couple of days later or a couple of days earlier.

Yes there are some favorable situations where you might want to get in on certain days - which we'll talk about in the course - but overall it's not going to affect you that much because you're choosing a range in the future. You're choosing a range whether it's kind of more in the middle.

It's really just about choosing your range or sweet spot of what you believe this stocks will do in the next 30 days, 60 days, 40 days, 80 days. You get to choose the time frame now.

I wouldn't go too tight on the time frame because the shorter the time frame, the less premium you make.

For example, in this situation and in this case, we have two contracts on the puts and on the calls. You're going to make $470 on $1530 of investment. But if we go up to September, what you'll make is $614 on 1386 so versus $470 on 1500. You make much more money if you go further out.

I hope this shows you the power of iron condors and how easy it can be compared to options. I'm not saying it's totally and completely easy because there's still a lot of work involved behind it.

There's a lot of knowledge that you need to know and understand, just like learning to ride a bike, you got to get that knowledge. You need to build that education but it's a lot easier than to figure out which stock is the best stock.

I've got to figure out when to get in the position. When to get out of the position. In this case, what you're doing is you're setting up a position range so that way that stock has room to wiggle and you collect your theta in premium decay.

There's still a lot of work that goes into it as far as learning this. There's a lot of time you got to learn when the appropriate time to shift gears so that goes along with when you put on the iron Condor. And some of these things will be covered in the course. That's what the course is really all about. To fine-tune those things.

With iron condors, it's about choosing a range rather than picking a stock that you know is gonna go up or down. It's not about a direction.

I teach you all those things and more in my new Iron Condor course -> Click here to learn more about it <-

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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