We’ve saved this section last because it is the most important part.
I cannot stress this enough. Don’t skim over this because it can make a major difference in your trading outcome. We have seen clients who do much better than us because they are smart about their executions. We’ve also seen people come in who blow through their account because they didn’t actually listen to us when executing trades.
Let’s first look at an option chain for the SPX
You have a few numbers here.
The first column is the strike price of the option.
The second column is the bid price.
The third column is the ask price.
And the fourth column is the volume.
When we trade options, we want to get the best possible prices.
So let’s consider something fairly simple– a put spread. Specifically, the 2360/2350 put spread.
The 2360 put is trading at 14.70 x 15.50
The 2350 put is trading at 13.40 x 14.20
The absolute highest price that you could get for this spread is 2.10
And the absolute lowest price is 0.50.
There is a MASSIVE DIFFERENCE between the bid and ask of this spread.
What does that mean?
It means that at the prices you want, you aren’t always guaranteed a fill.
The trades we take have advantages and disadvantages.
First, there aren’t many people using this strategy. That helps us sustain an edge over the long term.
But the tradeoff is that the liquidity is a little tighter.
Let’s put this in more practical terms.
1. FOR THE LOVE OF GOD, NEVER USE MARKET ORDERS.
The market makers will eat you alive, and you will basically be guaranteed a loss on the trade.
2. It may take more than a day to get filled.
Basic iron condors tend to get filled quicker when the market rallies. It requires you to be patient.
3. There is no evil market maker.
The person on the other side is a robot and will basically hedge off any exposure when they take the other side of the trade. There isn’t some evil trader lurking around to scalp you… the trades you take are your responsibility.
4. Be prepared to adjust.
Figure out where your adjustment points are, and if you think the market can hit them the next day, have an execution plan setup. Too many times have I seen people get “bad fills” only because they weren’t prepared for the adjustment they would need to take.
Work With Us To Grow Your Account
If you have ANY QUESTIONS about the trades we take, what kind of prices you should look for, how to put on a trade, how to adjust a trade, or ANYTHING ELSE WHATSOEVER…
Go in the chat and ask. That’s why we’re here. If you hangout in the background, don’t put the work in, and then email us saying you held an iron condor too long an you got blown out… THAT IS ON YOU.
We’ve got 20 years of combined option trading experience, and there’s a reason you signed up in the first place. Let us help you grow your account and manage your risk.
Viewing Your Profit and Loss
If you’re not used to complex option spreads, you may get a little confused when you see your open p/l.
In fact, you may panic and just blow out of a trade.
Here’s the thing.
You must view your income trades IN AGGREGATE.
Let’s take an example.
You put on an iron condor and the market rallies.
So you’re making money on the put side, and losing money on the call side.
Well, if you’re not paying attention, you’ll just focus only on that one short call that’s down thousands of dollars, while ignoring the ACTUAL RISK in the trade.
Don’t do that.
It gets worse if you don’t keep track of your realized p/l.
For example… market rallies, you take off your put spread for profits.
And now your position just looks like one big loss, because your trading platform only tracks realized losses. Make sure to ALWAYS ACCOUNT for any adjustments you have.
Preferred Brokers and Tools
We like thinkorswim for its analytics. You can use any option brokerage you wish, but make sure you have some form of analytics package so you can view the trade all at once.
We also highly recommend OptionNET Explorer. It’s the only software available that easily tracks the realized p/l of the trade on top of your existing open trade.