Weekly options: A business approach

March 16, 2015 12:00 PM

No-touch condor 

The Sheridan four-day no-touch iron condor is designed to let the trader profit from the same concepts as the nine-day RUT iron condor but with less active management.

Here’s how it works: On Monday, at 10:30 a.m., after the market finds its equilibrium from the opening, put on the position. Sell call strikes with a 7 to 11 delta, put strikes with a 15 to 18 delta. In SPX, buy long strikes 10 points further out from short strikes.

Exit when either target is hit. The profit target is 7% to 9% and the maximum loss is 12% (see “Initiation and targets for no-touch condor,” below).

To exit, simply take off the “bad side” of the position. If the long option on the bad side is less than 25¢, just leave it on. There are no adjustments.

However, consistency is key. There will be losers. You must do this trade every week to be in position to take advantage of the probabilities. The “four-day” part of the name comes from the fact that the maximum duration of the trade is four days. Sheridan usually exits by Wednesday, but always by Thursday.

Sheridan has similar sets of rules for trading weekly calendars, butterflies and double diagonals, but the principles are the same: When delta is moving against you, take action to reduce it. When max loss is hit, bite the bullet, take the loss, regroup and return for the next week. Alternately, there are the “No-touch” methodologies for those that aren’t ready for adjustments or simply want less work.

Whether you are adjusting or “no- touching,” the strategy requires the trader to be there each and every week. This is just as simple, then, and as difficult, as marathon training. It may even be better than building a business because that’s what the strategy is designed to help traders do. Just like any business, it requires consistency, coming back each day, not quitting. That’s how you turn options trading from a series of speculations into a consistent, profitable business.

There is lot of strategy and a lot of rules and regulations, but it does work. 

“It’s a matter of first learning, then applying the craft, day in, day out, week in, week out,” Sheridan says. “That’s how the consistent profits are made.”    

John A. Sarkett is the author of several books on options, including “Option Wizards: Real Life Success Stories from the Financial Markets.” His e-mail is jas@option-wizard.com. Dan Sheridan can be reached at dan@sheridanmentoring.com.

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About the Author

John Sarkett is the author of several books on options, including “Option Wizards: Real Life Success Stories from the Financial Markets.” His e-mail is jas@option-wizard.com. Dan Sheridan can be reached at dan@sheridanmentoring.com.