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Making $100K a Year with Iron Condors – is it possible? Ep 233

We’re going to take a look at making a $100,000 a year with iron condors.

In other words, we’re looking at how much trades you would have to do on a month-to-month basis to be able to hit that $100K a year.

That’s what we’re going to take a look at. I’m going to show you a couple of different variations and examples. And the whole reason behind this is because I’ve had a couple of people ask me on the live chat this: “Hey, how do I replace my full-time income? How to replace my job?”

Taking some taxes into account, let’s say you’re averaging $60K-$80K a year on the average job in the United States at the time.

Make $100K a Year with Iron Condors – The First Step

Let’s see some of the figures, the types of trades that we have to create to be able to make a $100K a year with trading iron condors.

To get this example going, I want to look at a basic stock. To be able to make a $100K a year, I’m going to have to assume that you’re making $10,000 every single month. That way, you can earn these $100K a year if you make it for ten months.

However, if you make it 12 months in a row, we’re talking about earning $120,000 a year. When you take taxes into account, you get $100K depending on your tax bracket.

I don’t want to get too technical on the numbers side. But I do want to show you some general ideas and guidelines.

Let’s aim for $7000-$8000 a month, which assumes you might have a couple of months losing or breaking even points. 

Don’t forget, all of that also depends on:

  • the stocks you trade 
  • the market conditions 
  • the volatility 
  • many other factors 

But to keep things simple, let’s take a look at around $7000-$8000 a month. If you multiply that times twelve months, you should be able to get a $100K a year.

Starting with More Advanced Examples

If you do trades that are maybe thirty days, you need to do a little bit less of that. If you do fifty days, it’s going to cost you a little more. Let’s go the 30-day mark. Also, let’s say we’re going to do twelve trades a year on Apple. And we go to around the ten percent mark on the puts and ten percent on the calls.

We’ll go to sell an Iron Condor. I’m doing this on the weeklies right now just because it’s a simple 30-day time frame.

To be able to do the 10% will do that’ll be the put side one 170 and the one 160 on the put. And the call side about the 10% that 205’s. And we’ll buy for protection again we want to get the 215.

That would be our iron Condor right there.

Right here, we’re risking $917 to be able to make $83. That’s about 8%-9% return.

Let’s continue to stack some more contracts. If we get to about 16 contracts, we’re using about $14,000 in capital. Take a look at where our profit is around $6000-$7000. Here we continue to move up some of these contracts.

It looks like I’ll probably need to do about 85 contracts or so to make $7,000 on the straight.

Of course, you have commissions and expenses, so you might want to bump that up to about 95. That would give you about $8,000 if you let it run to expiration.

To make that, you have to put up about $87,000 in cash. That’s on a regular margin. If you have a portfolio margin, it’s going to be a lot less, which is more advanced. But in this case, if you’re looking to make $7,000 from the trade on a month-to-month basis to be able to hit your $100,000 target at the end of the year, you’re looking at about $87,000 in cash.

If you had about more than that ($150K-$200K in capital), you could make about your $100K a year. That’s because you’re looking at about $7,000 a month. Let’s say you only hit it about ten times per year, and you’ll make around $65K-$70K.

This is with Apple, and I’m taking into account that I might lose two of the months or three of the months. Or I might not make as much I get out early.

It gives you a guideline where your thoughts and processes are now moving in your mind; it’s probably different. Now you think that you don’t have that much capital or how do I get that much capital. Or maybe you wouldn’t trade this risky. Perhaps you’d go wider. If you would go wider, that means you need more cash.

That’s because then you’d be playing safer. If you’re saying that you wouldn’t go that risk-averse, it would be different.

What is Your Risk Tolerance?

Let’s say this is your scenario.

You choose 195,205,180 and 170.

If you bring it in tighter, you probably need a lot less cash now because now you’re looking to make $29,000 on $65,000 of capital. You can see how the tables turn very quickly, depending on your risk tolerance.

My whole goal is to show you an example of a possible starting point for you to start thinking.

However, there is the question: Are you that risk-averse, or do you have more risk on the line that you want to take on?

Maybe this isn’t the type of stock that you trade. Perhaps you’re more into the SPX.

In that case, you might need to trade a lot less. Or maybe you go a longer duration. Let’s say you only trade six or seven times a year going 40-50 days out.

Let’s go to about the 10% mark. We’ll go to 2560; we’ll sell an iron Condor here. And I’ll probably do this to do about 30, 40 point strikes. Let’s do 60 point strikes. And then here on the call side at the 10% area, you might go around, let’s say 2940 is the one we sell.

And the one we buy, let’s go 60 points again out. And let’s make it nice and balanced like the other side. And now what’s going to happen is I’m using $5,000 in cash to make $825.

You may ask, how do I make a $100K?

Well, let’s say in one trade, how would I make a $100K?

Let’s start stacking these, and you don’t have to be a rocket scientist – keep increasing numbers. With eleven contracts, I’m up about $9,000 in profits. So how many do I need?

Go to a hundred contracts, and it’ll give you an idea.

If you set 100 contracts, you’ll be at about $82,000.

The next step is to go about 120 contracts, and you’re at $99,000.

There you go. You need about 120 contracts throughout the year. Maybe make it about 150 for commissions and those kinds of things.

One hundred fifty contracts you would have to trade to be able to make a $100K a year from trading the S&P at about 10% at this volatility.

Again, volatility will shift, so you need to be careful there. Remember, we are looking here at $123K if you want to take into account taxes and losses.

That might put you down to $80,000 after those kinds of things. But again to trade this six times a year if you’re doing 40-50 days out. If you’re doing it 5, 6, 7 times a year depending on your timeframe and when you see opportunities well, you have to break this down into about six.

150 contracts / 6 = 25 contracts

You need to be doing about 25 contracts each time. Or let’s say about 30 contracts because of costs.

You’ll be making about $25,000.

$25,000 x 4 = $100,000

$25,000 x 5 = $125,000

However, don’t forget:

  • taxes 
  • expenses 
  • commissions 
  • fees 

Trading Capital – How much Do You Need?

You can do the math, and it gives you an idea. Now, how much cash is that?

Well, to be able to do this trade (to make 30 contracts), you’re looking at about a $155,000 of margin.

If we’re looking at having some in reserve, you probably want about maybe $280K-$300K if you’re going to play safe some cash on their reserves. If you are looking at your total portfolio, you might even have other investments in regular stocks. They also are just something completely different.

In that case, you might have a portfolio of $500K-$600K-$800K. And you might only use $150K of that for this trading itself.

Maybe this gives you a little insight into what’s possible with the capital you have. I’m not saying that this is the exact road or path that I would do. As you can see, now, you start stacking a lot of Vega in there.

You need to have some negative Delta to compensate. It’s good to balance this out, maybe with diagonals and double diagonals and calendars. It’s good because the negative Vega is so high, and of course, looking at what the volatility is, it’s going to change. So iron condors aren’t always the answer every single time.

You might want to do them a little different depending on market conditions. However, maybe this is a starting point for you to think about your trades.

A few important questions:

  1. How much cash do you need to be able to make what you’re trying to get to?
  2. How much cash and capital do you need?
  3. How many trades do you need to do to be able to make your living?

Maybe you’re not shooting for a $100K. Perhaps you’re shooting for $50,000, or perhaps you’re just shooting for $10K a year.

Final Word

Whatever the case is, use this as a guide. Maybe you have a little more or less risk tolerance. It all is up to you. There’s a lot of variables involved.

My goal is to show you a perspective so you can now fine-tune things depending on your own personal situation.

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