Seven-Step Iron Condor Trading Plan

Overview

• A complete trading plan for iron condor trading.
• Suitable for beginners and those seeking a structured plan.
• Offers a simple methodology for trading iron condors.
• Focuses on index ETFs over individual stocks due to stability.

Step 1: Build a Watch List

• Components: Index ETFs and individual stocks.
• Preference: Index ETFs due to tighter, less volatile ranges.
• Graph Insight: Index ETFs have a more concentrated range compared to individual stocks.
• Iron Condor Strategy: Profits from a stable market range with both call and put spreads.

Step 2: Chart Analysis

• Objective: Identify previous highs and lows on charts.
• Usage: Current price within previous highs and lows indicates a suitable underlying.
• Benefit: Previous highs/lows act as support and resistance, increasing likelihood of stability.

Step 3: Select DTE (Days to Expiration)

• Ideal DTE: Around 45 days for a statistical edge.
• Reasoning: Expected move is larger than realized move at 45 DTE.
• Shorter DTE: Risk of realized move exceeding expected move.
• Strategy: Place strikes around expected move range.

Step 4: Choose Short Leg Strike Prices

• Delta Range: 16 to 20 delta for short strikes.
• Trade-off: Lower delta is conservative, higher delta is aggressive.
• Win Rate Insight: Based on expected move and 16 delta options, higher actual win rates.

Step 5: Determine Wings

• Risk Management: Wings based on max acceptable risk.
• Example: $500 max risk implies a $5 width.
• Adjustments: Increase width for higher premium if under max risk.
• Even Wings: Start with equal wings before attempting skewed iron condors.

Step 6: Order Execution

• Order Type: Use limit orders for control over entry price.
• Price Range: Use mid-price as a guide and adjust slightly for better fills.
• Price Discovery: Adjust limit order incrementally to find fill price.

Step 7: Plan Exit Scenarios

• Importance: Knowing exit strategy is crucial.
• Take Profit Options: 50% winner or exit at 21 DTE.
• Performance: Exiting at 21 DTE shows better long-term performance.
• Combo Strategy: Consider combining both exit strategies.
• Understanding Losses: Expect some losses; aim for long-term profitability.

Key Insights and Recommendations

• Index ETFs: Preferable for iron condors due to reduced volatility and risk.
• 45 DTE: Provides a statistical edge for the expected move.
• Delta Selection: 16-20 delta provides a balanced approach.
• Exit Strategies: Exit at 21 DTE or 50% profit for improved results.
• Continuous Learning: Regularly adjust strategies based on market conditions and personal comfort.