From the October 01, 2011 issue of Futures Magazine • Subscribe!

Profiting with Iron Condor Options

Book Review

Profiting with Iron Condor Options
By Michael Hanania Benklifa
FT Press 2011
$34.99, 179 pages

Michael Benklifa is an experienced professional, managing millions of dollars in condor trades through his firm, Othello Consulting. In this relatively brief and effective presentation he shares many of the concepts learned through years of trading and observing market tendencies. For the reader, the result is a guided tour through and around complex trading strategies centering on iron condor options.

As the author points out, he is not making public a secret formula for trading success. What he describes in his book is a process composed of suggested steps and procedures that should lead to potentially profitable trades with controlled risk.

An iron condor options trade combines two credit spreads — a spread that sells a call option far above the current price of the underlying stock, index or futures contract protected by another call farther out that is bought (forming a credit spread), and another credit spread in which a put is bought to protect a put that is sold far below the current underlying.

The reward/risk ratio of an iron condor is generally not good at the start of a trade. This explains why Benklifa devotes much of the book to explaining methods for controlling and reducing risk. He describes himself as being risk-averse, treading carefully through the minefield of changes in prices and volatilities. One chapter focuses on an effective analogy comparing a horse race with an options trade from beginning to the finish at the expiration date, considering the trader’s decisions and changing odds along the way.

The author describes the mathematical concepts surrounding options pricing and spread management — “the Greeks.” An important piece of advice repeated several times in the book is to “trade the math” – that is, the trader should concentrate of the math relationships of the iron condor trade instead of trying to control stock price fundamentals, economic trends and any considerations other than “what is in front of you” at any time.

Early in the text, Benklifa says that “the focus is more on practical trading strategies and less on theory.” This approach works very well in the many examples that show how to trade during different types of markets and with options on stocks and indexes.

There are some statements that would benefit from a clearer theoretical framework. For example, “The beauty of Delta is that the market tells you specifically what it thinks are the probabilities of a specific price being reached on expiration day,” and “Delta is the best forward-looking indicator and it is made in real time.” These ideas expand considerably the scope of Delta’s definition as the slope of an option price curve at any strike price, which simply shows the change in option price for a one unit change in the price of the underlying stock, index or futures contract.

Throughout the book, charts and tables from OptionVue 6 software play a starring role. Every trading concept is clearly described and carried out from start to finish, so that the costs, risks and profits all are in place. The author does not hesitate to show bad results along with the good, producing an accurate view of profits and losses at every point.

Beginning with the preface in which Benklifa describes his history with iron condor options, he writes of the need by traders in options spreads for greater knowledge about the way options work and adds two caveats: (1) That by their nature condors are high-risk strategies, and (2) that the condor is simply a trade and not an income strategy. Continually emphasized is the rule that profits in the condor should be taken as quickly as possible, reducing time and risk in the market to a minimum.

In essence, Benklifa achieves what appears to be his goal — to provide a useful manual for trading iron condor options. This is an excellent starting point for those who have not entered this market. For those who already trade and who want to improve their profits and have better control over risk, there are checklists of important points in all aspects of iron condor spreads.

Paul Cretien is an investment analyst and financial case writer. His e-mail is

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