The Risk With Popular Option Income Strategies

The amount of time needed to recover from a debacle is the difference between the low-risk strategies and the popular income strategies. Recently there was a “computer glitch” resulting in a loss of fifty to seventy percent in a two week period for those trading Iron Condors as income spreads. It will probably take them ten months or more, maybe even a year and a half to make their money back. Most option traders won’t be able to rebound from this crash.

For those of us using low-risk strategies such as the broken wing butterflies, we lost around one to five percent at the worst, if they were done right. I personally experienced a 2.5% drawdown. As you can see, the big difference is that when things go bad for us, it was much worse for those trading the popular income strategies. Calendar Spreads, Iron Condors, Covered Calls, Credit Spreads, and At-The-Money Butterfly Spreads were all annihilated due to the recent “computer glitch”.

As you can see, traders trading Broken Wing Butterflies were much better off. Some didn’t have any drawdown whatsoever and those who did were able to manage their losses and stay in the game. Those of us trading the low-risk strategies were lucky enough to make our losses back over the following month while traders trading the popular income strategies will probably never make their money back.

So this is why I personally do not invest too much money in the popular income strategies any longer. For my style they are just too risky. I would much rather make money a little bit slower but never have any of the huge losses that these aggressive income traders are facing each year. To me it makes more sense to protect what I have and to take whatever the market gives me. I know that long-term my option trading plan will work much better this way.

Over the years, I’ve reworked and tweaked these popular option strategies to be low-risk. My trades initiate with lower risk, and my alternative way of doing Iron Condors has proven to be much safer than the popular Iron Condor. I’ve also developed Broken Wing Butterflies and Unbalanced Condors that have become some of my all time favorite trades. I like that I can initiate a trade with about two percent risk, be in the trade, and then remove the risk almost completely in most cases. That’s right; sometimes I actually have trades that are basically risk free. The only way I’d loose on these trades is if the market drops move than seven percent in one day. Think of this though, if I’m loosing money, then those trading the popular option spreads don’t stand a chance and will be left with nothing at all. Even in the most extreme circumstances, my strategies have proven to be much safer than anything I’ve seen out there.

Trade Low-Risk Option Strategies, not your livelihood. Learn safer ways to Trade Options with San Jose Options. Don’t be an ordinary option trader!