FAQ – Iron Condor

What is the ROI track record of the Iron Condor strategy?

Historically, the iron condor strategy will make positive returns of +7% to +10% per month for 7 to 8 months out of the year when the market trades range-bound, or moderately trends upward or downward.  For 4 to 5 months out of the year, historically, we’ll be in adjustment mode moving our trades into a new trading range as the market has made a large move. While in adjustment mode we’ll historically book -2% to -5% realized losses per month. We focus on the total return over a 12-month period, so if we can keep our losing months small, which we have a good track record of achieving, we can historically make some handsome returns. Please go to the Iron Condor ROI Track Record Page for more on our returns

Why should I put time into learning this particular strategy and not some other options strategy?

If you are interested in learning this strategy, then please read Top10Reasons.  You also don’t need to do anything because you can have your account autotraded where we do the trading for you. About 85% of our clients have their accounts autotraded, and 15% are self-managed.

I am new to options trading. If I decide I want to learn this strategy what steps should I take?

Eighty five percent of our iron condor clients have their accounts autotraded, where some have interest in learning the iron condor strategy, but they learn it over time at their own pace.  Most autotrade clients don’t have the interest or time to learn the strategy so they let us do the trading for them.

Fifteen percent of our iron condor clients are self-managed where they will need to ramp up faster because they are responsible for opening, closing and adjusting the trades that we recommend.  With this said, our advisories tell the self-managed clients exactly what to open, close and adjust so they don’t need to become an expert on the strategy overnight.  The self-managed client will need to know how to open and close options trades in their brokerage account, and know how to enter 4 legged adjustment orders.

For the iron condor strategy a self-managed option is still available.  However, this strategy is faster moving than it was in the past as we have moved to 2 week in duration trades since 2015, from 4 week in duration trades. It’s faster moving than in the past and we make many adjustments throughout the month as the market ebbs and flows.  If you have a day job and don’t have easy, immediate availability throughout the day to make trades when they are emailed out, then it’s not recommended to self-manage the iron condor strategy.

For the clients that do want to self-manage, many start out with little or no experience trading options, and many start here at Monthly Cash Thru Options (MCTO) because we make it easy for the beginner to learn credit spreads and iron condors.  We enjoy teaching, and we tell all and hide nothing when analyzing the markets and building our options trades.  There are about 10 major option trading strategies, and credit spreads and iron condors represent two major strategies that fall into the category of non-directional, option selling and income generating.  MCTO got its start in 2005 focusing on non-directional credit spreads and iron condors because they work day-in and day-out making consistent returns.  One recommended approach to learn options is to first learn credit spreads by following our advisories.  After about 6 to 9 months you’ll start getting the hang of it, and at the same time you’ll be making decent positive returns on your capital.  At this point, we would recommend to take an introductory options course to learn more about the other major trading strategies and to dig deeper into the fundamentals of options. In parallel, you’ll be making a good monthly income trading credit spreads and iron condors.  Because we are very experienced with iron condors and we have already worked out the kinks, you won’t have to “spin your wheels” for many months or even years and lose money as you learn this strategy.

The first thing we recommend is to go to the MCTO Learning Center on this web site and start studying the material.  Next, sign-up for a free 30 day trial.  After opening your brokerage account, start small with just one or two contracts  (one spread or iron condor requires $1000 in maintenance; two spreads or iron condors require $2000 in maintenance….etc).  And then keep following our trades and education until you begin to feel comfortable with this strategy.  Over time as you become more and more knowledgeable and confident in writing index credit spreads, slowly increase your account size and this will gradually increase your monthly income.  You will soon realize that you’ve discovered a new income stream that you’ve never had before.

I would like to talk to you on the phone, can I call you?

Yes, call anytime toll-free at 877-248-7455.  From outside of the US, please call 408-375-9890.  We are located in San Diego, California.  Or email us at support@monthlycashthruoptions.com .

Which brokers autotrade the iron condor strategy?

What underlying indexes do you use for the iron condor strategy?

We open credit spreads and iron condors using weekly options on the S&P 500 index (SPX), and periodically on the Russell 2000 index (RUT).

What if the market crashes, how do we protect ourselves?

We take a two-pronged approach to manage downside risk.  First, we actively monitor macro-level economic, sentiment, breadth, and technical indicators allowing us to make better decisions when to reduce margin, reduce our bull put exposure, or to completely stop opening bull put spreads during uncertain times, substantially reducing our downside risk.  This data, along with 15 years of experience in seeing many market cycles, helps us modulate our levels of exposure.  For more on what indicators we monitor, and our approach please go to Why Market Timing is Important.

Secondly, if the underlying index moves quickly, we proactively make adjustments to our trades to reduce our risk and possible losses.  Please visit the Learning Center and read the case study entitled “what if the market drops unexpectedly, how do we protect ourselves?”.

When is the best time to join?

Any time is the right time.  We open credit spreads and iron condors using weekly options, so we are continuously opening and closing trades throughout the week.

What kind of brokerage account do I need to trade the iron condor strategy?

You need to have a brokerage account that allows you to trade options in the form of spreads.  For TD Ameritrade, for example, you would need an account that has been assigned level 2 trading authority, which would allow you to trade spreads.  For the other brokers, you would need to contact them to find out what specific trading level is required to trade spreads.

How long is the average holding period of the trades for the iron condor strategy?

We open 2-week in duration credit spreads and iron condors.  If the trade successfully expires out of the money and 100% profitable, the trade would be open for 10 trading days.  If the underlying SPX or RUT indexes start to move more than a few percent forcing us to adjust the trade, then we’ll usually add an additional 5 to 10 days as we move the strike prices of the trade UP or down, moving it farther away from the underlying index.  In this case the trade would be open for 15 to 20 trading days.

How many recommendations are provided each month?

Typically, for the iron condor strategy, we make 2 trade recommendations per week, for about 6 to 8 trades per month using weekly options that expire on Monday, Wednesday or Friday.

How are the gains taxed on credit spreads and iron condors that use the SPX and RUT indexes?

Because the SPX (S&P500 index) and RUT (Russell 2000 index) are classified as cash settled, broad market indexes, options that are traded on these indexes are taxed per the IRS Section 1256 contracts 60/40 rule.  Per the 60/40 rule, sixty percent of the gains are taxed as long-term capital gains which is currently at 15%, and 40% of the gains are taxed as standard earned income.  By placing option trades on cash settled, broad market indexes we get generous tax benefits.  For more information, do a Google search on “IRS section 1256 tax 60/40 rule” and you will find more information on this topic.  Please make sure to talk to a tax professional for all up to date information on this topic. We are not licensed tax professionals and we are not authorized to give tax advice.

How do broad-based indexes like the SPX and RUT settle and expire?

We only open trades on the SPX and RUT indexes using weekly options where they settle on the day of expiration at the end of the trading day.  These are called PM settled options.  These are the best options to trade as they are PM settled.  Alternatively, the traditional monthly options that expire on the 3rd Friday of each month settle in a different way, called AM settled.  MCTO decided in 2014 to no longer open trades on the monthly options as they were becoming too dangerous to hold through the AM settlement process.  We now only trade weekly options.

How much reserve cash do I need in the account where I’m autotrading the iron condor strategy?

Thirty percent (30%) reserve cash is required where either the cash is already in the account, or it can be moved into the account within 4 days. One source of reserve cash is a home equity line of credit where you link your line of credit to your checking account and you link your checking account to your brokerage account.  This will provide the reserve cash when required, mostly during the 4 to 5 months each year when we’ll need to make adjustments.

Would MCTO ever open credit spreads or iron condors on stocks?

No. All of our option trades are credit spreads & iron condors on the S&P 500 index (SPX) or Russell 2000 Small Cap Index (RUT), which eliminates company specific risk.  We personally spent a year following a newsletter that traded credit spreads on stocks and decided that we did not like this strategy because our trades were at the mercy of company specific news. For example, the CEO steps down unannounced, the CFO is suddenly accused of cooking the books, an executive at the company unexpectedly makes a remark to the press that revenues are slowing down, or an analyst downgrades a different company but one in same industry. Any one of these events can quickly move the stock price turning the trade into a losing trade. The strike prices also need to be set very tight around the underlying stock to bring in a reasonable level of premium, making it a rather stressful strategy.  It seemed that just about every other day one of our credit spreads was on the dreaded “watch list”.  After this experience, we decided that the credit spread strategy is best done on broad-based indexes that comprise hundreds if not thousands of stocks, eliminating company specific risk.

Do you employ stop loss orders for the Iron Condor strategy?

No.  The MCTO team has been trading this strategy for 14 years and have concluded that stop losses work against us when writing far out-of-the-money, 85% probability, index credit spreads and iron condors. Our approach to handle a fast-moving market is to employ an aggressive adjustment methodology where we’ll move a trade if it starts to get under pressure or goes in-the-money.  In contrast, for most directional options strategies, stop losses are absolutely required to protect the trading capital.

What market conditions are best for credit spreads & iron condors?

This strategy works well in moderately bullish or bearish markets, and sideways, range-bound markets.  If the market moves more than a few % then this is not good for this strategy and we will need to make adjustments on our trades.  Historically, the market will make significant upward or downward moves 4 to 5 months out of the year and we’ll usually be in adjustment mode moving our trades during these months. During adjustment periods 4 to 5 months each year we’ll typically book -2% to -5% losses per month.  Historically, the market will trade range-bound for 7 to 8 months each year and this is when we can book +7% to +10% realized gains per month. When adding up the winning months and the losing months over 12 months we can usually make a handsome, positive annual return.

How much money do I need to get started for the iron condor strategy?

For the iron condor strategy self-managed you can start with as little as $1,000 and then slowly increase the size of your options brokerage account as you become more comfortable with writing index credit spreads and iron condors. $1000 will allow you to open 1 credit spread or iron condor, which is enough to get started.

For the iron condor strategy autotrade the minimum to get started is $6500;  $5000 is traded and $1500 for reserve cash  (30% reserve cash is required).  The next increment up for autotrade is $13,000; $10,000 is traded and $3000 for reserves.  For autotrade, the account size increases in $5000 increments, plus 30% in reserve cash.

I still have a question not found on this page. What should I do?

If you have unanswered questions or would like clarification on any of the information on this web site, please email us at support@monthlycashthruoptions.com, or call us at 877-248-7455.

I’m not sure if I want to put effort into learning the iron condor strategy. Can I just let you do the trading for me?

Yes, we can do the trading for you in your standard taxed or IRA brokerage account.  About 85% of our clients have their accounts autotraded where we do the trading and account management for them.

What maximum dollar amount can I allocate to my autotrade account?

We will trade up to $125,000 in the autotrade accounts for retail clients.  For clients that would like to invest more please contact us about the managed accounts that are managed through our sister company MCTO Capital Management.

Should I self-manage or autotrade the iron condor strategy?

Eighty five percent of our clients have their accounts autotraded, where some have interest in learning the iron condor strategy, but they learn it over time at their own pace.  Most autotrade clients don’t have the interest or time to learn the strategy so they let us do the trading for them.

Fifteen percent of our clients are self-managed where they will need to ramp up faster because they are responsible for opening, closing and adjusting the trades that we recommend.  With this said, our advisories tell the self-managed clients exactly what to open, close and adjust so they don’t need to become an expert on the strategy overnight.  The self-managed client will need to know how to open and close options trades in their brokerage account, and know how to enter 4 legged adjustment orders.

For the iron condor strategy a self-managed option is still available.  However, this strategy is faster moving than it was in the past as we have moved to 2 week in duration trades since 2015, from 4 week in duration trades. It’s faster moving than in the past and we make many adjustments throughout the month as the market ebbs and flows.  If you have a day job and don’t have easy, immediate availability throughout the day to make trades when they are emailed out, then it’s not recommended to self-manage the iron condor strategy.

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Which brokers allow autotrading in an IRA account?

Autoshares, TradingBlock, Interactive Brokers/Global Autotrading, and eOption allow clients to autotrade the MCTO strategies in an IRA account.  TD Ameritrade does not allow autotrading in IRA account.  Because it’s difficult to add additional funds to an IRA account, it’s recommended to trade no more than 50% of the account and leave 50% as cash.  About 4 to 5 months out of the year we’ll be in adjustment mode with our iron condor trades because the market has moved a lot, and we’ll possibly need to tap into the 50% reserve cash during these periods.

When are the advisories sent out via email or text?

We send out the main Iron Condor weekly advisory via email every Sunday evening.  This is the main, weekly advisory that analyzes 40 charts and guides our trading and levels of exposure for the following week. We email additional trade advisories throughout the week as trades are triggered.  There is no set day or time for the trade advisories.

To see an example of the main, Sunday advisory please go to http://www.monthlycashthruoptions.com/MCTO_Advisory_Feb4_2018.htm .

Do you trade your recommendations in your own personal account?

Yes, for the iron condor strategy, the portfolio manager that runs the strategy personally trades everything he recommends in his own personal accounts.

What % of my total investable cash should I allocate to the Iron Condor Strategy?

It’s recommended to allocate a maximum of 30% of one’s total investable cash into any single strategy. It’s best to diversify one’s portfolio across 3 or 4 strategies to limit downside risk.

How do I set up the autotrade rule for the Iron Condor strategy?

Monthly Cash Thru Options Iron Condor Service (IC) autotrades through several on-line brokers. Autotrading is a service where your brokerage account is traded automatically based on trades published by MCTO.

The IC Service currently offers auto-trading through TD Ameritrade, eOption, TradingBlock, Autoshares, OptionsRoute and Global Autotrading that autotrades through Interactive Brokers. If you are interested in our auto-trading program and don’t see your broker listed, please contact us and we’ll contact your broker to see if they support auto-trading.

The process of setting-up an IC autotrade account is as follows:

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