Conditional order suggestion for the SPX Weekly Iron Condor

I received an email from one of our subscribers with an observation and comment on using automated stop loss orders for the SPX weekly Iron Condor. I value all the feedback I receive from readers of the Couch Potato Trader Newsletter, and felt it was worthwhile to pass along the suggestion.

For those of you who trade the weekly Iron Condor, you will know that I recommend setting a "Conditional Order" with your broker to exit for target gain, as well as the pre-set max loss. Sometimes, however, with a 4-legged stop loss order as with the weekly Iron Condor, the stop loss based on a particular mark price of the position could trigger prematurely in a rapid price movement. Most of us have experienced this, which can result in accepting a loss for the trade, only to have the market recover.

There are positives and negatives with all aspects of trading, including conditional orders. Having the stop loss order in place based on the mark price can also prevent a larger loss in the event the market does not recover.

The suggestion was made to me to have an additional element in the stop loss order which would trigger on a particular price of SPX, based on distance to the short strike and major support/resistance levels. For example, a reasonable price level would be if the price of SPX comes within 20 points of either short strike. If that occurs, the stop loss order based on the mark of the position itself would then trigger.

If you would like to add this to your conditional orders, please follow your broker's specific guidelines on the particular setup of the conditional order, as each one is slightly different.

Of course, there are many traders who prefer to manage the position without conditional orders, which is perfectly fine as long as you are able to monitor the position during market hours. With a short term position such as the weekly Iron Condor, rapid price movement in either direction can greatly affect the gain/loss of the position.

Thank you, Jean-Charles, for your suggestion. I am always looking for ways to help all of you be successful in your trading and reach your annual goals.

As always, stay keen on your risk management and trade carefully,

Dot Hazlin