Options Boot Camp 396: SPCX Options and Rogue Iron Condors

And you know what? It's funny, it works out that you're joining us here on this episode this week, Matt, because we had this question from Sully on the show last week, and we just didn't have time to get to it on the show.

Lo and behold, we hold it over for this week, and it's all about pretty much back testing and analysis.

[laughs] So it's right up your alley, Mr. Matt.

So Sully's been waiting patiently.

Let's get to him first.

Sully wants to know, "I've been paper trading iron condors, and the win rate looks insane.

But now that I'm live, I'm noticing that when a trade goes wrong, it wipes out five of my wins.

What is the optimal management rule for vertical credit spreads? Should I be taking profit early at 50% or cutting losses at 2x the credit received? Right now my risk to reward feels completely broken." So obviously he's been paper trading, uh, short iron condors, and he's discovered what a lot of premium harvesters discover.

It works until it doesn't, Matt.

And then he's, uh, then he's kind of freaking out what happens when it doesn't work.

So, uh, what are your thoughts? What...

We were talking about this on the last episode.

You had some rules for when to take off some of these trades.

What do you have to say here for Sully, who's having a hard time paper trading his iron condors?

Yeah, I mean, it, I, I feel for the guy, right? So this is ever- every trader's lament, is, "Hey, I back-tested it, I paper traded it, and now I'm live.

Uh, uh-oh, uh, you know, I get a bad trade, you know?" And, and, and we've seen what, what happens, right? Like, you know, we've had, uh, you know, two big moves in the, in the past, uh, three months, and, you know, it's, it's painful to have these type of positions on.

But that's where you...

You know, uh, uh, trading is, is difficult, and, and having risk management is, is a very important thing.

So, um, you know, uh, uh, again, uh, I, uh, w- the way that I trade and, uh, you know, is, is the same way.

And, you know, paper trading, you know, that, that says to me, uh, you know, how long was the paper trading for? So, you know, probably not through some of these difficult times.

So you, you gotta go through some difficult times, and you have to make sure that your, you know, your stop losses actually work.

And you're correct.

You have to make enough so that you can absorb some of these losses and, you know, and have your max loss in the, the difference between your long leg and your short leg to where you don't wipe out, you know, a year of trading.

You might wipe out two months of trading.

But all those things have to be considered.