Benklifa's 'Profiting With Iron Condor Options': Thoughtful and Practical

by: Brenda Jubin
Profiting with Iron Condor Options: Strategies from the Frontline for Trading in Up or Down Markets by Michael Hanania Benklifa (FT Press, 2011) is a book that anyone who trades iron condors or who aspires to trade them should read. It’s not that this is the final word on how to trade iron condors; there will never be such a book. But Benklifa explains what goes into the decision-making process throughout each trade and makes specific suggestions about the best ways to trade iron condors. He also describes in detail a perfect trade, a not-so-pretty trade, and an ugly trade.

The iron condor trader has many decisions to make, including what instrument to trade, how to structure the entry, the best market conditions for entry, trade management as the market moves in sync with the trade or even violently against it, how to mitigate risk, and how to choose the ideal exit. Benklifa makes these daunting decisions a lot easier.

To give a few examples:

The author advocates trading condors on indexes rather than individual stocks and recommends the SPX, RUT, and NDX in particular. These options are liquid and are European-style (hence no risk of early exercise).

In structuring the entry, the trader must consider position, price, and time. Benklifa offers precise rules with respect to these parameters. For instance, “deltas should be 10 or less if possible but never greater than 12” and “expiration day must be no closer than 49 days.” (pp. 89-90)

The exit strategy that Benklifa advocates might seem counterintuitive: “The exit strategy that works best is to give back almost all of the credit.” (p. 106) He recommends that the trader have a profit target before he opens the trade and immediately thereafter place a GTC limit order to buy to close the condor.

As the trade plays out the condor may have to be adjusted, and the author offers some adjustment rules. For instance, “Trade the math: Don’t let Deltas go over 25 to 30.” (p. 148) By the way, “Trade the math” is a mantra that is repeated several times throughout the book and is roughly equivalent to “Trade the Greeks.”

The book ends with a different, somewhat “Wild West” strategy for selling condors—getting in ahead of major news events and essentially day-trading condors.

I have given a very brief, admittedly shallow summary of what is a thoughtful and yet eminently practical book. Quite frankly, I don’t think I need do more. Iron condor traders should definitely read it, option traders in general can profit from it, and the rest of the world can simply move on.