So far during Iron Condor month we’ve looked at legging in to iron condors, and AAPL iron condor example and long-term condors vs short-term iron condors.
Today I’ll answer a common question that comes up – Are 10% Per Month Returns Possible With Iron Condors?
Iron Condors are formed using a combination of a bull put spread and a bear call spread. You can learn more about the basics here.
They can be a very profitable strategy and they form the basis for most of my trading.
There are a lot of websites out there promising 10% returns per month, so can it be done?
ARE 10% RETURNS POSSIBLE
Technically yes, you could potentially make 10% per month returns. The problem is you would have to trade 100% of your account to do so.
If you do that, it’s only a matter of time before you blow up your account.
The way I explain it to people is this – “if you’re trying to make 10% per month, that’s 120% per year. Finance 101 tells us that higher returns equals higher risk, so you must be taking on a boat load of risk in order to make 120% per year.”
Think about this also, most hedge fund managers don’t achieve more than 25% per year, so what makes you think you’re going to do better than guys that went to Harvard, with 20+ years industry experience??
You have to be realistic.
APPROPRIATE ALLOCATIONS TO IRON CONDORS
By now it should be pretty clear that you should never risk 100% of your account on iron condors. Personally, I think about a 20% allocation is good.
Allocation levels depend on risk tolerance so some people may prefer to go higher.
Another thing to consider is to adjust allocation levels depending on the current level of volatility. When volatility is high, it makes sense to have a higher allocation to iron condors. When volatility is low, it makes sense to reduce exposure.
The most important thing with condors and any trading strategy to be honest, is to have a plan and stick to it!
Come back in 2 days when we’ll look at a live example of an iron condor.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
