BROKEN OPTIONS SETUPS AND THE ART OF PATIENCE
People have frequently mentioned to me that they can't make iron condors work for them, primarily because a single broken setup can undo a long string of profitable trades. This, of course, is a true statement if absolutely nothing is done to attempt to repair these broken trades and get them back to at least scratch or, ideally, into profit. It's all a question of patience.
Here is one of my most patience-testing trades I've been diligently working since October 2015 earnings -- YUM. I'm showing only the original setup here, along with the "current state of affairs" (a July 15th 70/75/82.5/90 iron condor); there are a bunch of rolls in between. And, lo and behold, we're back to where we started with YUM price, although my setup isn't currently ideal to take advantage of it (the short call is right at where price is now). And even though the current setup looks "troublesome," I've collected enough credit with rolls to be able to contemplate getting out of this trade for scratch with the July 15th expiry (or even a small profit, depending on how patient I am).
This trade naturally presents an extreme example of how long it can take to work out one of these broken trades. It may take a few days to get the movement you need; it may take a few weeks; here, it's taking months. Regardless of how long it takes, however, a couple of factors and/or variables are constant -- patience and trade sizing. Going small on trades allows you to be able to have a bit of buying power tied up with messes like this while you continue to work and book profit on higher probability trades. Go too big, and you're losing sleep over one broken setup that you feel pressured to close early because you lack the patience to give it time to work out.
A Side Note: YUM isn't the most volatile underlying in the world the vast majority of the time, but implied volatility does ramp up a bit around earnings, so it's to your advantage to exercise patience and roll on these implied volatility ramp ups if you can, since you'll collect more premium if you do so.
Here is one of my most patience-testing trades I've been diligently working since October 2015 earnings -- YUM. I'm showing only the original setup here, along with the "current state of affairs" (a July 15th 70/75/82.5/90 iron condor); there are a bunch of rolls in between. And, lo and behold, we're back to where we started with YUM price, although my setup isn't currently ideal to take advantage of it (the short call is right at where price is now). And even though the current setup looks "troublesome," I've collected enough credit with rolls to be able to contemplate getting out of this trade for scratch with the July 15th expiry (or even a small profit, depending on how patient I am).
This trade naturally presents an extreme example of how long it can take to work out one of these broken trades. It may take a few days to get the movement you need; it may take a few weeks; here, it's taking months. Regardless of how long it takes, however, a couple of factors and/or variables are constant -- patience and trade sizing. Going small on trades allows you to be able to have a bit of buying power tied up with messes like this while you continue to work and book profit on higher probability trades. Go too big, and you're losing sleep over one broken setup that you feel pressured to close early because you lack the patience to give it time to work out.
A Side Note: YUM isn't the most volatile underlying in the world the vast majority of the time, but implied volatility does ramp up a bit around earnings, so it's to your advantage to exercise patience and roll on these implied volatility ramp ups if you can, since you'll collect more premium if you do so.
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