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Tackle Today: The Challenge with Single Stock Condors

September 2, 2021

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Here’s the Only Time I’ll Do It


Coach Tyler here with a lesson on Iron Condors. This neutral options strategy is a popular cash flow trade we use primarily on Indexes or broad-market ETFs. We even built a trading system around it (Cash Flow Condors). You can sell condors on individual stocks, but it requires a discriminating eye. Finding a stock that’s in a range isn’t by itself a compelling enough reason to deploy a condor. You also need to have high implied volatility. If you don’t, then the profit range usually isn’t wide enough to justify the risk.

In my experience, by the time it’s obvious a stock is neutral, it usually breaks out and starts trending anyway. The phrase “a trend in motion stays in motion” doesn’t apply to trading ranges. That is, a range in motion rarely stays that way. Sooner than later, bulls or bears finally break the stalemate, and directional mobility ensues.

The high implied volatility is really vital. If you’re using implied volatility rank, you need a reading at least above the 25th percentile. Above the 50th percentile would be ideal, but these days volatility measures that high are rare. Anything below the 25th percentile, and you’re better off going with a different strategy.

One more thing. I’d prefer there was no earnings report between now and the expiration date of the options you use. High implied volatility ahead of earnings is a given. It’s when you get it outside of earnings season that it becomes both exciting and potentially actionable.


Chart of the Day

Disney (DIS)

Disney is an excellent example of a stock that might tempt you to do a condor. Unfortunately, the four-month range is unlikely to last, and implied volatility is in the basement at the 3rd percentile. If I entered an Oct condor, I assure you the stock would start trending to teach me a lesson.

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