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Tales of a Technician: An Iron Condor Post-Mortem Part 1

October 2, 2017

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Tales of a Technician: An Iron Condor Post-Mortem Part 1


Aug 18th, 2017 – Sep 27th, 2017

Salt Lake City, Utah – Mr. October “Heartbreaker” Condor was born on Aug 18th, 2017 amid great fanfare. His proud papa (Papa T) welcomed him with open arms into a warm portfolio. Papa T even provided him with a highly coveted perch to settle on. And while his doting father had many hopes and dreams for Heartbreaker, happiness was not meant to be. Since the beginning the beloved bird misbehaved. Instead of a feathered friend, a fiery fiend was foisted upon poor Papa T. And no amount of cajoling or begging convinced the Condor to straighten up and fly right. The entirety of his tragic life was spent burning any and all greenbacks he could get his claws on. And these weren’t Washingtons we’re talking about here, but Benjamins. Heartbreaker had expensive tastes.

Always one to test his boundaries, Heartbreaker finally went too far last Tuesday. The dastardly bird ran afoul (afowl?) of the one line in the sand which Papa T swore would be the last straw. That line, of course, was $1970 on the Russell 2000 Index. And true to his name, Heartbreaker didn’t just tip-toe across, he straight up flew across like a bat out of Hell on rocket boosters. By the time Papa T could load his shotgun and mercifully pull the trigger, Heartbreaker had gobbled up half the treasure left by his predecessors.

A Celebration of Death (Heartbreaker doesn’t deserve a Celebration of Life) will be held on October 18th at 8:30 PM EST for any and all owners of the Condors for Cash Flow system. In preparation, Papa T is providing the following post-mortem for Heartbreaker. Consider it a retrospective highlighting the lessons everyone can extract from a Condor gone wrong.


What made the October Condor so unique was the speed at which RUT ripped when it hit my short strike. It’s probably been a year or two since this has happened, and even then I don’t think we’ve seen a squeeze of this magnitude perfectly timed to extract max pain.

Here’s what I mean. The value of the Iron Condor jumped an insane amount when the RUT broke out on Tuesday. Its cost rapidly rose from around $5 to almost $7 in a little over an hour. In case you didn’t know, that’s INSANE. If you weren’t quick on the trigger when $1470 was breached, or if you didn’t have a standing contingent order to get out at market once $1470 was hit, odds are you lost a lot more than expected.

For example, I initially entered the 1070/1080/1470/1480 Oct Iron Condor for $1.10, and I exited Tuesday at $5.18, so my loss per Condor was $4.08 not counting any hedging. It’s a miserable outcome, no doubt, but one that is still within the parameters of what we typically expect for a losing trade.

But, if you didn’t get out quickly, or if you were stubborn and waited to see if the price would drop back a bit so you could exit at a smaller loss, you got screwed. Suppose you finally threw in the towel an hour after the touch of $1470 when the RUT was fast approaching $1485. Let’s say you paid $6.50 and locked in a loss of $5.40 per spread. How many gains did that give back? If you typically make $1 per spread on a winning month, you just sacrificed the profits of the last five months. OUCH!

I don’t mind giving back two, maybe three months’ worth of gains with a losing Condor. But five is a nightmare!

For what it’s worth, I ended up losing a little over $3 per Condor because of hedging. That means with the profits from other bullish trades I added on RUT, I essentially sold the Condor for $1 at trade entry and bought it back for $4.

Hedging Can Help

There are two approaches to the Condors for Cash Flow system: active and passive. The passive approach is to set it and forget it. In a losing month, you simply take your lumps and move one, confident in the system’s edge and its ability to produce profits over time.

The active approach involves hedging. That is, adding extra bullish trades when the RUT is too strong and bearish trades when it’s too weak.

Here are the details of how you might have played October.

  • 8/18 – Entered Oct 1160/1170/1470/1480 Iron Condor @ $1.10
  • 8/31 – RUT breaks resistance – Entered Oct 1300/1290 Bull Puts @ 80 cents
  • 9/11 – RUT breaks resistance– Entered Oct 1330/1320 Bull Puts @ 70 cents
  • 9/18 – RUT breaks resistance – Entered Oct 1370/1360 Bull Puts @ 55 cents
  • 9/19 – Exited Oct 1300/1290 Bull Puts @ 15 cents. Locked-in gain of 65 cents
  • 9/21 – Exited Oct 1330/1320 Bull Puts @ 20 cents. Locked-in gain of 50 cents
  • 9/27 – Exited Oct 1160/1170/1470/1480 Iron Condor @ $5.18. Locked-in loss of $4.08
  • 9/28 – Still hold Oct 1370/1360 Bull Put – should be able to close @ 10 cents locking in a gain of 45 cents

Assuming we entered the same number of contracts on the hedges as the original Condor (i.e., five Bull Puts for five Condors), then our net loss was reduced from $4.08 to a more comfortable $2.48 per spread. In this case, we would have given back the gains of the prior two and a half winners instead of four.

Access Part 2 where we talk about pain prolonged when correlations crumble and using bull calls instead of bull puts to hedge.

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9 Replies to “Tales of a Technician: An Iron Condor Post-Mortem Part 1”

  1. Avatar BRUNOSILVINO says:

    I hope the dastardly NOV bird does not behave the same.. Tyler if you consider hedging the Nov position could you please post it so we can learn about the timing for hedging etc.. Thank yoU!


    Hi Tyler, thank you very much for this thoughts, great explanation. As Bruno commented earlier, can you please give us a few ideas for NOV ?
    For example RUT 1530/1540. Given it’s already over 1500 and October just started, need to do something

  3. Avatar PATRICIAROBSON says:

    Thanks , Looking forward part 2

  4. Avatar TsvetanErenditsov says:

    Great write Tyler! Waiting for Part 2!

  5. TylerCraig TylerCraig says:

    Bruno – I’m already well into hedging November. I’ll do a more in-depth breakdown during the October MasterMind Group Meeting, but here’s a quick recap: Sep 15th – Entered 1280/1290/1510/1520 Iron Condor @ $1.26. Sep 20th entered Nov 1350/1340 bull puts @ 75 cents. Sep 22nd entered more Nov 1350/1340 bull puts @ 70 cents. Sep 26th entered Nov 1370/1360 bull puts @ 80 cents. Sep 27th entered Nov 1490/1500 bull calls @ $4.30. Sep 29th entered more Nov 1490/1500 bull calls @ $5.50. Today I exited part of my Nov 1490/1500 bull calls @ $5.70. I also exited half of my Nov 1510/1520 bear calls @ $5.10. I suspect tomorrow I’ll probably get blown out of the rest of the Nov 1510/1520 bear calls.

    Was the hedging complicated? Not really, I just kept adding bullish trades. In hindsight I should have added bull calls quicker. But, at the end of the day, instead of losing around $4 per condor, the loss should be closer to $2 or $2.50 which is much easier to manage.

  6. Avatar David Barcroft says:

    Tough trade on what was originally a .07 delta short call.

    14 trading days since 9/8 with no retracement (with the exception of 3 days with short doji’s and minimal movement) to go through 1470 and then another 4 day run on top of that…..broke both the 1 year and 3 year trend line. Running above 20, 50, and 200 day moving averages. Barely broke Support ~ 1452ish on the 26th before the big day on 9/27. Nothing in the news other than a bit more noise re “tax reform” and FOMC positioning that might fuel such a run…. 9/27 is largest single daily move of 2017. Only other thought is that it might have been a good target to move end of quarter changes into.

    Did you consider….or would you comment re the thought of rolling out (and up?) the Bear Call side?


    I am paper trading this now to get used to the Condor but man this has been some crazy movement. My spread is still good but at this rate it will hit my short side of the call 1550.d

  8. Avatar MelanieBarr says:

    Love your writing style Tyler. This has been a tough trade and it does not seem like its done considering hot the rut blew through 1500 today. I had struggled with condors all year and thanks to you and Tim’s help I know what I was doing wrong and can move forward confidently. Had this been a year ago I would have rode this trade to max loss and then quit doing condors. This time my loss was less and I stuck to my plan, it will be easier to recover.
    Thanks Tyler

  9. Rani Bush Rani Bush says:

    Good stuff. I’m paper trading for now, so my pain was vitual. Although it sucked, great learning opportunity.

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