Here’s how I think about sizing & managing the Cash Flow Condors system.

Notes

I have a question regarding our Cashflow Condor system. As discussed before, we size our IC to be 1 per every $10K, which leaves us with $1.2 for every $4 we risk. This means that if we end up with two losing months then we would need around 7 profitable months to end up the year with some profit. But if we end up with 3 losing months in the year, we would need 10 profitable months to cover the loss. Does the Cashflow Condor system call for any action from our side in case we end up with three or more losing months?

Cash Flow Condor Systems Rules

Position Sizing

MAX size suggestion for Cash Flow Condors. I don’t do this many. I do far less.

Do 1 condor per $10k in the account. The condor cost is about $1k. That translates into 10% of account MAX into 1 condor. We enter 60 DTE, you have 2 going simultaneously. That works out to 20% total.

Consider LIARs. $10k account. Do 1 condor per month

• 1 losing month: -$300 to $-400 (3% to 4% drawdown)
• 2 losing month: -$600 to -$800 (6% to 8% drawdown)
• 3 losing month: -$900 to -$1200 (9% to 12% drawdown)

Expectancy

• Average winner: $100
• Average loser: -$350
• 2 losers EAT 7 winners
• 3 losers EAT 10 winners
• 13 trade streak: Win 10, lose 3 – I breakeven
• If I’m only winning 76% of the time, I’m breakeven. I need to win MORE than that.
• Trade rules: sell 8 or 7 deltas. POP: 85%

Management Rules

1) Always On, Passive Management. Do it every month. Get stopped out at the short strike. Hope you win more than 9 out of 12.

I’m viewing this as a PIECE of my overall portfolio. I’m not relying on cash flow condors as a standalone to drive all of my performance.

2) Always On, Active Management. Do it every month. Pay more attention to overall portfolio bias and beta-weighted delta. Use other strategies (add IWM bear calls, add IWM bull puts, or any other strategy) that is more directional to offset what I’m losing on the Condor.

• Win $100 9 times.
• Lose $300 3 times.
• Breakeven.

What if I could hedge/add offsetting positions in those losing months and trim my loss to $250?

• Win $100 9 times
• Lose $250 3 times
• $150 gain.

Bull Put Spread Structure

1) Sell higher strike put (IWM $175 Oct) $1 credit.

2) Buy lower strike put (IWM $170 Oct) 50 cents debit.

• Net Credit 50 cents
• Max loss $4.50 x 100 = $450

Trade Management

1. Exit if the stock breaks support
2. Exit if the stock hits my short strike price ($175)
3. Let the spread go ITM and give it time in hopes that we rebound by expiration. If it’s STILL ITM at expiration, you could close the Oct 175/170 bull put and open a Nov 175/170 bull put
4. Leg out if it goes against me and milk more profits from the long put.
   1. Pro: if the market keeps tanking AFTER you leg out. You can make all the loss back and then some QUICKLY.
   2. Con: What if the market goes back up AFTER I leg out? It’s a double whammy. You can lose MORE than the $4.50 original max loss.

Example

• Short 175 put (BULL)
• Long 170 put (BEAR)

If the market goes down and breaks support or hits the 175 strike. Why not CLOSE the bull part of the trade but KEEP the bear part of the trade?

Bear put is ITM, up 100% but could make another 100%+. What do I do?

• 1) What’s more important? Reducing risk or maximizing gains?
  • If maximizing gain is more important then I’m put in a stop loss and let it ride.
  • If reducing risk is more important then I’m making an adjustment to pull money out of the trade. Roll down. Close 178/173 bear put. Open 173/168 bear put.
  • Shrink the spread width by rolling down the higher strike.
    • Long 178 put (178/173 bear put). Sell it and buy 176 put.
      • Old trade 178/173 bear put (5-wide)
      • New trade 176/173 bear put (3-wide)

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