4132
Log In | Help

How to Use the Conditional Order Point for a Condor or Iron Condor

by Uncle Bob Williams

Profitable Condor / Iron Condor traders are disciplined at trade monitoring and management. The Pros will place a conditional order on a Condor so that their positions will be removed if the Market makes a significant price jump. The Pros have consistent exit points that are based on the Delta value of their Short Strike. The exit points can vary from a very conservative Delta of 16, to an aggressive Delta of 30. The Delta point that each fund uses depends on the overall trading strategy of the fund, and they will be consistent and not sway back and forth between different Delta values.

Novice Condor / Iron Condor traders will often trade based on their emotions and just pray that the Market will reverse before it hits their Short Strike, only to remove their positions when the Market approaches or hits their Short Strike and then suffer large losses. 

The key to trading Condors like a Pro is to determine level of risk that is appropriate for your portfolio, and then to trade with very strict discipline according to those Delta values. It's a game of statistics where you put the probability of profit in your favor by sticking to the rules. If you break the rules, you also lose that statistical edge. 

The Uncle Bobs Money Trade Finder and Trade Monitor automatically shows us the Estimated Delta values of our Short positions if the Underlying approaches our Short Strike so we don't have to do the calculations and we can just place our conditional orders to trigger at the appropriate underlying price. 

IE: If the SPX goes down to 1,250 then the Delta of my Short Strike should be approximately 16, and I want a conditional order to remove my Condor spread if the SPX hits or goes below 1,250. 

Before we jump into the Uncle Bobs Money displays, let's first understand how this calculation is made. 

Example:

We place a High Prob Condor trade and the Delta of our Short position is 7 when we place the trade. 


A Our Condor spread on Acme:

=> Current price of Acme (underlying) is 100

=> Our Condor spread:

SOLD 1 | ACME | JUNE | 90 | PUT | Delta = 7 

BOUGHT 1 | ACME | JUNE | 80 | PUT  


B Lets say that we are conservative Condor traders and we want to place a conditional order to remove our Condor spread if the Delta of our Short Strike hits 16.

=> We first find the PUT strike that has the approximate Delta value that will be our trigger price. In this case, we find that the 94 PUT has a Delta of 16.

=> Next we find the price difference between our Short strike and the target Short strike: 94 minus 90 = $4 price movement. 

=> Next we subtract the price difference from the current underlying price: 100 Acme current price  minus 4 = 96. 

=> If the price of Acme drops down to 96, then the Delta of our Short Strike should be approximately 16, so we can place a conditional order to remove our Condor if Acme hits 96 or below. 

For the more advanced traders, you probably noticed that we made the assumption here that the Volatility will stay the same which is fine for the purpose of placing conditional orders. Which is exactly why we call these values "Estimated". If the Market does 'crash', the volatility will shoot up and it will be more expensive to exit, so you can move your conditional orders closer to the underlying price to compensate for a market 'crash' scenario. 

- - - - -

TRADE FINDER - Estimated Delta values of  Short

The Condor Advanced tab on the Trade Finder shows what the underlying price would have to be for the Delta of the Short Strike to reach the 16, 20, 25 and 30 Delta values. 

Trade Finder Advanced Tab: Estimated Delta of the Short Strike when the Underlying has reached these values.


For the Professional trader, you can use the Delta Exit value to see how much the underlying would need to move before your conditional order would be triggered. Based on your Technical / Market analysis you can evaluate the risk this trade represents. For example, if you normally exit with a Delta value of 16, and the underlying would be significantly below a Technical Analysis Support value when the Delta reached 16, then you may have more confidence in placing that trade based on the Support level.

- - - - -

TRADE MONITOR - Estimated Delta values of  Short

All Condor trades show the Estimated Delta values of  Short for the 16, and 30 Delta values:


Trade Monitor: Estimated Delta of the Short Strike when the Underlying has reached these values.


You can use these values to place conditional orders on your Condor positions. 

Please remember that these values assume that the Volatility levels will stay the same. If the Market does 'crash', the volatility will shoot up and it will be more expensive to exit, so you can move your conditional orders closer to the underlying price to compensate for a market 'crash' scenario. These values will be most accurate when the Market moves slowly toward your positions. 

If you are not able to monitor the Market during the Trading Day, you can adjust your conditional order trigger points each evening to minimize the loss of a Market 'crash' by moving the trigger point slightly closer to the underlying price. Under most circumstances, a moderate amount of trading price fluctuation will not trigger an exit order, but you will be removed from your positions earlier if there is a 'crash'. It is important to remember, that conditional orders cannot help if the market gaps on the Open. Your trigger may have been passed by the gap and you will have a live Market Price order where ever the current price is.

Have a Question? Comment? Suggestion?
Ask us.