things you can do to adjust a trade, including adding a calendar at the at- the-money (ATM) strike to buy time, scaling out, or buying extra longs to cut the delta.
What is your exit methodology?
It depends on the type of trade. Just as with the entry methodology, each strat- egy has its own risk management rules.
What was your motivation to sign on?
I understood the mechanics of how options worked from reading books on option trading and doing some trading on my own. After discussing the mentoring program with Sheridan, how- ever, I realized I did not know how to trade and it was apparent that was what he could teach me. I don’t think most people realize there is a big difference between understanding the mechanics of options and being able to trade suc- cessfully year after year.
What has been your track record? Pre- Dan, post-Dan.
Prior to working with Sheridan, I only had limited success, mostly on covered calls. In 2007, I had 10 winning months and two losing months, ending the year very successfully. But my sole income for the past three years has come from trading options.
If a trader with the capacity to follow rules undertook condor trading, what kind of annual return could he or she expect?
You do have to be disciplined, but it’s more than following the rules. You have to have the personality for trading.
Part of it is patience. Some traders start out, put on condors for a few months, then the market moves side- ways and the traders beat themselves up that they didn’t trade bigger. But they haven’t been through all the different
kinds of scenarios the market can throw at you. That’s why it’s so important to trade small, for six, 12, even 18 months.
Not only that, trading is like any other business or profession — some people will be better at it than others. Gener- ally, I look at the yield per trade. On condors, I’m looking for yields of 10– 13% per trade. Calendars will have a better yield than condors. With calen- dars, I’m looking for something in the 15% per trade range.
Here’s how I figure yield:
(Margin - credit received)/gain = yield
For example, if your trade is a 20- point wide RUT 30 lot iron condor for $3.27 - margin = $60,000 - credit re- ceived = $9,810, so that’s $60,000 - 9,810 = $50,190. That’s the yield base. If you made $7,000 on this trade, your yield would be $7,000/$50,190 = 13.94%.
Another way to look at this trade is
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Bonus Issue 2009 • Technical Analysis of STOCKS & COMMODITIES • 59