Iron Condor Pinnacle

The Iron Condor Pinnacle strategy is our most conservative income generating strategy that is optimized for the following conditions:

  • A US economy that has been slowing and could go into a recession over the next 12 to 15 months
  • A yield curve that is flattish and recently inverted. Thus the bond market is still sending a message that the US economy could slow over the next 6 to 9 months.
  • The current economic expansion is the longest on record and very long in the tooth
    • A slowing economy & going into a recession is a gradual process, not an event.  It takes many quarters to unfold.
    • Recessions usually cut the stock market by -30% to -50%
  • Slowing corporate earnings that are projected to contract by -2.3% in Q1 and be flat in Q2 2019
  • A slightly expensive market trading at 17.3x forward S&P500 earnings
  • Continuous political uncertainty that can sell-off stocks at any time
  • A volatile market, especially in 2018, that is difficult to generate consistent positive gains using stocks, ETFs or indexes
    • SPX and COMPQ indexes are at their all time highs
    • Not recommended to buy broad indexes – minimal potential gain unless they break up through
    • Buying stocks or ETFs takes a lot of experience in this market – easy to get chopped up
  • Moderate probability that the major indices will hold below the all-time-highs
    • At least until we get through Q1 earnings season
    • If the indices break up through, then we’ll adjust accordingly

Characteristics of the Iron Condor Pinnacle Strategy

  • We hold maximum of 3 call spreads at any one time representing a max 30% exposure of the portfolio
    • Each position represents 10% of the portfolio and is open for 2 weeks
    • e.g. for a $10,000 portfolio, each trade holds $1000, representing a 10% allocation
  • We underweight the put spreads holding a max of 2 put spreads at any one time representing 20% exposure of the portfolio
  • This strategy is conservative by construction, which will allow us to sleep well at night as we have a low level of exposure in the markets and still able to make decent monthly gains.
  • Targeted returns for the total portfolio are 2.5% to 4% per month after commissions; several months could be zero with no trades
  • Capital preservation and safety are top priorities