We've taken the liberty of providing a brief outline on how to trade some simple Options strategies. As one progresses from the Single Option to the Iron Condor, even the novice trader can glean valuable clues as to how we structure our Iron Condor trades to return 20% per month consistently. We would like to reiterate that we will be covering just the basics of each topic in order to convey general ideas.
Simple Options Trading Strategies
Single Option - Trading a Single Option is quite a no-brainer, even for novice traders. It has a simple, straight-forward structure consisting of only one "leg", or Strike Price for an underlying security and an expiration date.
- Market Conditions to Look For: If you sell a Single CALL, you are looking for the market to go down. Conversely, if you buy that Single CALL, you are looking for market to go up. If you sell a Single PUT, you are looking for the market to go up. If you buy that Single PUT, you are looking for market to go down.
- Market Conditions to Look For: If you sell a CALL Vertical Spread, you are looking for the market to go down. Conversely, if you buy that CALL Vertical Spread, you are looking for market to go up. If you sell a PUT Vertical Spread you are looking for the market to go up. If you buy that PUT Vertical Spread, you are looking for market to go down.
- Market Conditions to Look For: If you buy an Iron Condor, you are looking for the market to either spike up huge or fall off the edge of a cliff before its expiration date. Selling Iron Condors, as we do for Trade Mavens, we look for the market to stay flat or trade within a relatively tight range for a certain period of time as we patiently wait for time value to decay until we see an opportunity to exit our position to lock in our target profit for the cycle.
Vertical Spread - This strategy consists of two different Strike Prices of the same underlying security, same expiration date simultaneously executed on the CALL side or PUT side. The vertical spread puts a "cap" on profit potential as well as the maximum loss for both the seller and the buyer. While the Vertical Spread does heavily favor the buyer in terms of profit potential, it provides valuable downside protection for the seller. If you are the seller, you are trading a Vertical Credit Spread. If you are the buyer, you are trading a Vertical Debit Spread.
The Iron Condor - Our Iron Condor strategy consists of a two separate Vertical Credit Spreads executed simultaneously on the CALL and the PUT sides with the underlying security trading inbetween each of the Spreads. All the Strike Prices are of the same underlying security and the same expiration date. The two Vertical Credit Spreads we select for our Iron Condors way out-of-the-money creating as wide a range as possible in order to allow the market work without jeopardizing our position.
How Capital is Earned
Singles and VerticalsTrading the first two strategies above, the seller makes money on the CALL side when the market totally tanks and his position finishes out-of-the-money by the time the expiration date comes around while the buyer of the same call position makes money if the market spikes up and the position finishes in-the-money by the time the expiration date comes around.
On the PUT side, the seller makes money when the market spikes up and his position finishes out-of-the-money by the time the expiration date comes around while the buyer of the same PUT position makes money if the market pushes way down and the position finishes in-the-money by the time the expiration date comes around.
Iron CondorsTo see how we make money trading Iron Condors, it would be best to continue to follow along as we walk through our explanation of how we construct and submit our typical opening Iron Condor and closing Iron Condor orders to generate our 20% per month. We realize that there will be those reading this material who have no patience, so you can click HERE to be directed over to our Return Calculations Page.