How To Potentially Make A Thousand Bucks With No Idea On Direction

#1

By Darrell Martin

Knowing which direction the market is going to go can often, if not always, be a challenge, if not impossible to know. This creates the need for a strategy that can profit either way the market goes. Enter the Iron Condor. An Iron Condor strategy buys a lower spread and sells an upper spread. The ceiling of the lower bought spread meets the floor of the upper sold spread and is at or very near where market is trading. With this kind of setup, the Iron Condor strategy can profit three ways.

  1. If the market doesn’t move at all

  2. If the market moves and then pulls back to where it started when you entered

  3. If the market moves in one direction but not significantly relative to your entries

Consider how the following Iron Condor trade played out using Nadex spreads trading the US Tech 100, a spread derivative of the E-mini NASDAQ.

To start all of the Nadex US Tech 100 spreads were brought up on the spread scanner for viewing. For this trade you wanted to look at spreads with positive green numbers in the Premium column, denoting those spreads had positive premium.

The How’s And Why’s To Trade With Positive Premium

What does it mean to have positive premium? If you are selling a spread and it has positive premium, that means you are selling and entering the spread above the market. Wouldn’t it be nice to sell above where the market is? The market would have the distance between where the market is and your entry price, to move without your trade losing. The market would have to go all the way up, past your entry price, before your trade would start to lose.

The same would hold true for buying below the market, only just the reverse. If you are buying a spread, and it has positive premium, that means the offer price to enter is below the market. With positive premium the market can stay where it is until expiration and your trade will make money. It will make whatever the premium was at the time of entry.

Going back to the example trade, two spreads were chosen that had positive premium. At the time of entry, the premium on the sold spreads was about $73 and the premium on the bought spreads was about $96. Had the market remained in that same place, the trade would have collected that premium as time expired, and at expiration would have profited $73 x 5 sold spreads = $365 and $96 x 5 bought spreads = $480.

You can see from the image that on the five spreads bought, the average price was 4310.4, and on the five spreads sold, the average price was 4331.7. With this setup if the market goes up, you can make money on your bought spread. If the market goes down, you can make money on your sold spread. If the market stays flat, you can make money by collecting the premium from both.

As the market moved up after entry, the profit from the bought spreads hedged the sold spreads losses.

When do you get nervous? You may get nervous when the market moves past your maximum profit on the other side. For example, on the bought side the maximum profit on one spread would be 9.6 or $96. On the other side, the sold spreads were sold at 4331.7, the market could move up in price by 9.6, to 4341.3. That is where you should call the trade. At that point, the bought spreads have profited, but the market has gone past the point of break-even being the entry price of the sold spreads, and is now losing. Below you can see how the bought side hedged the other as the market neared the breakeven line.

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Time Passed Both Spreads Became Profitable

If the market landed right in the middle at 4320, then profit on the sold spread would be 4331.7 - 4320 = 11.7 x 5 spreads = 58.5. Profit on the bought spread would be 4320 - 4310.4 = 9.6 x 5 spreads = 48.0. With each tick being worth $1 on Nadex, that would be a combined profit potential of $1065, and yet it was never known which direction the market was going to move.

You can watch the video of this Iron Condor as shown on The Diagnostics Trading Hour in its entirety. Duration: 54 minutes.

For more information on how to trade Nadex, futures, forex or CFDs, visit www.apexinvesting.com, a service by Darrell Martin. Nadex can be traded from 49 different countries.

Is running a marathon easier than this!?
#2

Darrell please tell me you have a video on this?

#3

The video is in the Diagnostics Trading Hour Archives. Do have one question that confuses me. So, when the Break Even on one side gets hit. Then, call the trade. Do you go by the indicative price, or the market of the spread price.

I,.m thinking the market price. But, wonder how a person should set the stop ticket to close the trade, if the market is hit.And, not the indicative.

#4

With Nadex products we always use the Nadex Indicative

#5

Thanks, Mark

#7

Please forgive my ignorance on this as still a relative newbie, but if we have no idea which way the market is going, other than perhaps it being “range bound,” then why do we even need to look at a chart of the instrument? This can’t possibly be as easy as “just make $1,000 even if you have no idea on direction,” can it? Just use the spread scanner to find spreads with high positive premium and sell the upper while buying the lower…???

#8

You do want to pick instances that would be mostly in your favor. If, there was a strong uptrend, then why do a sell? So, charts are ALWAYS needed.

#9

It appears to me you need $500 to open 1 trade like this so to make 1k you would need 2510

#10

Sharpie i usually stay in till a 1;1 risk reward if you exit at BE side you will get hit often

#11

I use expected ranges hi to low, Expected Ranges Close to Close. Expected Volume to see if its flat or declining. I compare the expected moves on the ranges to the pricing of breakeven and 1:1 risk reward. I also favor when there are deviations, iceo levels, and izones helping block one or sometimes both sides of the trade.

#12

Not sure what your point is the screenshots show I’m doing 5 contracts (live). Yes you would need $500 to put on the trade on one iron condor position on this specific trade.

That does not mean your risking $500 it can’t expire in both places at the same time.

You would have a mere max risk of approximately $100 at risk (as both spreads are $300 wide with about a $200 risk and either side makes approximately $100 so worst case loss is $200 less $100 profit from other side = a mere $100 risk if the market blew out in either direction.

So for a mere $100 worst case scenario you get the profit potential of $200 on the trade on a single iron condor and its not all or nothing like a binary butterfly.

You can make up to 40% ROI ($200 profit on $500 invested capital) and up to a 200% Return on Risk ($200 max profit on a $100 max risk)

On a neutral trade with a large range for breakeven.

Can you say I woud like more lol :slight_smile: Well i did that is why i did 5 contracts risking a maximum of $500 to make a potential profit of $1k on a range bound trade.

Note none of this includes going a step further and hedging a trade with OTM binaries with some of that premium and reducing the risk even lower.

#13

thanks for clearing it up ** what i was getting at was the capital not the risk. You can bet your sweet bippy I`ll be looking for some some today.

#14

Thanks, Darrell.

#15

Hi Darrell,
I’ve watched the video a few times and tried it out on demo not reallly understanding it yet but did win $150. My question is I have a pretty good overall understanding of Nadex and some understanding of forex. However haven’t really made much money with either. I’m feeling a bit overwhelmed with all the different stratagies out there. What would be a good one to just jump into and stick with first? I will only have about $300 in my live account to start with. I will of course demo demo demo until I’m consistant but I need to find one and stick with it until successful.

#16

Without a doubt the best place for you or any new trader, or any trader with a smaller account to start is the Izone sharpshooter System here with Nadex Spreads: https://forum.apexinvesting.com/c/s10-systems-izone-with-sharpshooter

#17

Thanks Mark I will take a look at that.