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:

1) Fund your brokerage account. The minimum level to start with for autotrading is $6,500, where $5k would be traded and $1500 is held as reserve cash. (30% reserve cash of what is being actively traded is required). It is recommended to keep the reserve cash in the account at all times. The next increment up would be to fund the account with $13k where $10k would be actively traded and $3k is held as reserve cash. The MCTO Team will autotrade accounts up to $125k. If you are interested in trading more than $125k, please contact us at 408-375-9890 and we can discuss the MCTO managed funds.

2) Within your broker’s website log into your account, navigate to the autotrade area, select MCTO as the newsletter provider, select the “Iron Condor 1” service, select “specific dollar amount”, and then enter the amount of cash you would like to allocate to each trade. We hold a maximum of 5 trades open at any one time. As an example, if you were to set your autotrade rule to $2k, you would be trading $2k x 5 = $10k. You would also need 30% reserve cash of the amount that you are trading, or $3000, so you would have $13,000 in the account. (it’s NOT recommended to select “% of buying power” when setting the autotrade rule). Another example would be to set your autotrade rule to $4k; in this example you would be trading $4k x 5 = $20k; you would need $6k in reserve cash, for a total of $26k in the account.  For more information about Iron Condor 1 versus Iron Condor 2 please go here.

3) Set your autotrade amount in increments of $1000. Working off of the previous example, the next level up would be to set your autotrade rule to $5k per trade where you would be trading $5k x 5 = $25k. In this example you would need about $7k in reserve cash for a total of $32k in the account.

4) The final step is to monitor the number of spreads or iron condors that go into your account when a new trade is open. Let’s say you have set your autotrade rule to $3k. In this case, each time we send in a trade to the broker they will allocate $3k from your account to the trade, and they’ll place quantity 3 spreads or iron condors in your account. You will get quantity 3 because each 10 point wide spread requires $1000 of maintenance that is held by the broker. All is good in this example. However, when you set your autotrade allocation to a larger dollar amount we need to be more careful. As another example, let’s say you set your autotrade rule to $20k. Because each spread requires $1000 of maintenance to be held by the broker, you would think that you’ll get quantity 20 spreads or iron condors. This is actually not the case. When we open a spread we collect a credit, also called premium. As we open more spreads, we bring in more premium into our account, and this extra cash will be used by the broker to open more spreads. Typically, for one that has set their autotrade rule to $20k, the account will get quantity 23 spreads. Therefore, instead of the broker holding $20k in maintenance, they are now holding $23k in maintenance for the 23 spreads. If this happens for all 5 positions, the total maintenance held in the account by the broker would be $23k x 5 = $115k. We then would want an extra 30% of this $115k in reserves, which would be equal to $115k + $33k = $148k in the account. In this example, the client had $130k total in the account where he/she had the intention to actively trade $100k with $30k held as reserves. But, because quantity 23 spreads were going into the account this client is now inadvertently trading $115k. We can see that we can accidentally over allocate the account because more spreads than expected can be put into the account. It’s important not to over allocate the account. Thus, please monitor the number of spreads that are going into your account. If it looks like you are getting over allocated, immediately lower your autotrade allocation dollar amount, keeping the allocation in $1000 increments. You can change your allocation amount at any time, even if trades are already in the account; this will not impact existing trades.

5) You may adjust your autotrade rule at anytime, even mid-cycle when trades are already open.

6) When we need to access to the reserve cash, we’ll send in a 6th trade alert, and then possibly a final 7th trade alert, which will allow us to access all of the reserve cash.

7) It’s recommended to start small and grow your account over time as you gain understanding and confidence in our analysis and how we execute our trades. Credit spreads represent a long term strategy where it’s a marathon, not a sprint.

8) After you set up your autotrade rule in your brokerage account, the broker will contact MCTO and alert us that your account is ready to be auto-traded and is pending.

9) Sign up as a paying subscriber to the MCTO autotrade service. We offer a $5 first month special for new autotrade subscribers. MCTO will then approve the autotrade rule and your autotrade account will be activated.

10) If you are auto-trading in an IRA or Roth IRA account, because moving cash into and out of the account is prohibited, you’ll need to hold your reserve cash in the same brokerage account. It’s also recommended to hold 50% of the amount that you are trading as reserve cash in IRA accounts.  If you have any questions about how to set up an IRA account or regular taxed account, please call us toll-free at 877-248-7455.