Why I don't like iron condors and iron butterflies. David Jaffee with BestStockStrategy.com
Best Stock Strategy where i earn around a million dollars a year by trading options. You
can go to BestStockStrategy.com, enter in your email address and receive free training that
is better than everyone else's paid training materials. So what an iron
condor and an Iron Butterfly is, is an Iron Butterfly is you're selling a
straddle spreads. For example let's say the let's say Facebook is trading at
like $157 right now you would then sell a put and a call with a strike price of $157.
let's say six weeks out and then you are then also going to BUY (I misspoke) the
wings which are around three dollars below and three dollars above so in this
case you would sell a straddle which means you would sell a put and a call
with a strike price of 157 you would then buy the $154 put and then you would
BUY the $160 call and all of these would have the same expiration date this would
be called an Iron Butterfly an iron Condor would be very similar to that
except instead of selling a straddle you would then sell a strangle so for
example if facebook is trading at 157 let's say you would sell the 154 put you
would sell the 160 call and then you would agree to buy the 150 put and the
164 call. Alright so if Facebook is at 157 you
would then sell the 154 put you would buy the 150 put you would sell the 160
call and you would buy the 164 call that would be an iron Condor which is very
similar to an Iron Butterfly it's just that the butterfly is a straddle spread
and the iron Condor is a strangle spread. So now that we got that stuff out of the
way the point is I don't like any of these strategies for two reasons
then this actually goes into why I don't think that Kirk Du Plessis from option
alpha makes any money because not only is it telling you that you should do
iron butterflies and iron condors but he's also telling you that you should do
do them on ETFs which have about half as much premium as regular underlyings so
you're not gonna make any money by doing these strategies alright and I mean look
you will make some money is better than like buying options because you're not
gambling so yeah if you sell some strangle spreads then your returns will
be like relatively low like maybe you know maybe you'll make like 10 or 15% a
year which isn't that bad I mean it's better than losing money which is what
you're going to do when you day trade or use technical analysis or trade penny
stocks but you're not going to make like a lot of money and it's gonna require
you to have a substantial amount of adjustments and a lot of time and effort
in monitoring your positions so going back to why I don't like these positions
and also this fits into the video that I made of why I don't think that option
alpha and option alpha com why following their strategy is going to make you any
money first off it's a spread I don't like spreads. Trading naked options are
by far your best way because it maximizes the amount of premium that
you receive it's a lot easier to manage those positions and it also inherently
makes it a lot harder for you to trade too many contracts because it reduces
the amount of buying power that you use up for every position that you open so
those are the three main reasons and three primary drivers of wire and always
try to sell naked options as opposed to spreads the second reason is that a lot
of people do these type of strategies on ETFs and indexes which I don't like
doing because the amount of premium that you receive on indexes is about half of
what you would receive on an underlying and look like very huge underlines
like your Facebook which is a $500 billion dollar company and Amazon
you have Apple which is a trillion dollar company you might as well just sell
options on those companies as opposed to using an ETF because you're going to
receive twice as much premium the third reason is I just don't like selling
calls right from my experience and I've made thousands of trades every
single year I can tell you that the likelihood that a call gets challenged
is around three to four times as high as the likelihood of having your foot
challenged now yes if the market turns and we enter a bear market then I will
definitely sell calls and in February of 2018 I made around $100,000 by selling
calls on Amazon and that was great but what I so calls an Amazon right now I
would not especially because Amazon was trading around $1870.
I was considering selling $2150 dollar strike
price calls on Amazon when Amazon was around 2040 or 2050 but I
didn't and actually I don't regret that because I don't think that it was
necessarily a very high probabilistic trade for me the cell calls on Amazon
where it's only where I would choose a strike price only 5% above the current
market price so when Amazon was trading at twenty fifty I did think that it was
getting a little bit expensive but I don't necessarily regret not selling
that 2150 call because even though I would have made money I think I would
have gotten into bad habits so again I don't like selling spreads I don't like
selling calls because my from my experience those calls and a bid and
challenged around three or four times greater likelihood than the puts end up
getting challenged and the third reason why I don't like iron condors and I
definitely don't like butterflies is it requires much more babysitting you're
gonna have to make a lot of adjustments in your account so it's going to
increase the amount of commissions that you pay you're gonna have to log into
your account three or four times a day to make sure that the underlying stock
price is staying relatively close to this to the strike prices that you
choose so a Facebook is trading like in 157 and you're trading an Iron Butterfly
you have to make sure that facebook doesn't fall to like 150 - or that it
doesn't trade up to like 165 because then you're gonna lose money so yeah I
understand like the whole argument about hey I'm gonna sell in I own butterfly
and then I'm gonna treat I'm gonna close it out at 25 percent profit but I mean
first of all that's complete bullshit because even if you do do that
not really making that much money for being compensated for your risk because
if you're selling an ETF you're automatically receiving less premium and
you're trading a spread which minimizes the amount of premium because you're
buying the wings and you're essentially throwing money out in order to reduce
your buying power for capital efficiency and you're going to tell yourself that
it's going to reduce your risk but we all know that the reality is that
selling verticals is a lot more risky than selling naked position so if you're
going to have the ETF aspect eating to the premium that you receive and you're
selling spread so you're gonna have the further out wings that you're buying eat
into your profitability and you're only collecting 25% because you're closing
out your trays at 25% profit how much money is there right and some of those
traits are gonna be losers so you have to factor that into the equation and
you're gonna have to adjust those positions you're gonna have to pay
commissions etc and eventually you're just gonna spend a lot of time and
twiddle your thumbs and have a lot of anxiety but a lot of those trades are
gonna end up being losers so this is why I don't like selling iron condors and
iron butterflies and this is my main criticism of Kirk Du Plessis at option alpha
I think that his videos are really well made. I know that he's been
doing this for around eight or ten years and I've been doing it for like eight or
ten months so I can't like hold a candle to his name recognition but as far as my
returns and whether I'm a better trader than him. I am 100% certain and that I am a better trader than him and that I teach better information than him but it's
just that his production value is substantially higher than mine because
he's been doing it for a lot longer so if you have any questions let me know
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