The Weirdor or “Weird Condor” Strategy
The Wierdor finds its origin in the experience and acumen of an exceptional veteran options trader by the name of Dan Harvey, who has worked for years with Dan Sheridan (sheridanmentoring.com). Dan Harvey carefully crafted about 10 years ago the Weirdor strategy in order to address possible flaws (or risks) in the classic Iron Condor (see image below). The IC is a great Delta-neutral / positive-Theta / negative-Vega position that is generally conservative and easy enough to manage yet experience shows that even with a 10-Delta IC, occasional losses can be painful in either up or down direction.
The Weirdor, a High Probability Alternative Condor
High Probability means this type of trade is placed conservatively enough to win 85+% of the time, i.e. ~10 months in the year, i.e. close to IC’s stats yet with minimal adjustments. The Weirdor is easy to learn, easy to manage, hence it is a great confidence booster to then move on to more complex strategies. In this version, the trade is on for about one month, and it can be this repeated easily month after month with a stable margin. Trading options is always a “margin play” and in this case, margin is not as volatile as the original Iron Condor from which it is derived, making it easier to manage in a portfolio.
A monthly cycle is appropriate for RUT, but it could also be applied to weekly options (although with experience and caution) particularly with SPX where the volume is higher than RUT. The rationale is the same, with adjusted SD calculations.
The Weirdor’s expected return is on average 3-4% a month (verified performance), i.e. 35-40% a year taking into account occasional limited losses, with a limited volatility of returns (~3.3% over the last two years). We note that losses can in general be accounted to sharp moves and market liquidity conditions and certainly not the trading method as such. An average losing month is lower than an average winning month.
NOTE THAT OM’s WEIRDOR IS NOT QUITE THE SAME AS ITS PREDECESSORS.
The characteristics of a Weirdor, compared to an Iron Condor, is that one can expect:
- The same Delta neutral approach, yet with a flatter curve i.e. less Gamma risk, in other words, a position that allows time for adjustments
- The same positive Theta,
- Same negative Vega behaviour,
- A safer more conservative return,
- A lower sensitivity to volatility,
- A limited upside risk and an easier risk management on the downside with for instance additional put debit spreads,
- Low maintenance with easy pre-emptive adjustments,
- Stable margin (~$18000 per tranche).
Note: Some of the most literate readers may have noticed that Vega is not a letter in the Greek alphabet; the name arises from reading the Greek letter ν (actually pronounced ‘nu’) as a V.
That said all options strategies exhibit a different “Greek” signature, both at inception and during the life of the trade. That signature means a particular behaviour in a particular market situation, and for that matter the Weirdor is not an Iron Condor and must be regarded as a different trade. Some Iron Condor traders may indeed develop wrong habits replicating their existing experience on this trade.
Who should trade the Weirdor?
Is the Weirdor the ultimate options trade? There is no answer to this question. Each trader has a risk profile, a lifestyle, expectations, and a certain level of experience and knowledge. Suffice to say that the Weirdor qualifies as a fairly easy trade, that is not too time consuming and that satisfies a broad spectrum of investors interested in consistent income generation. That said, many professional or simply more experienced options traders often move on to more complex strategies generating a higher performance for a similar risk (different Greek “signature” though).
As mentioned above, knowledge is key to success and no respectable coach will advise to blindly follow a method or a recipe. This trade is aimed at a low-intermediate level and presents the clear advantage to be quickly in a position to trade while learning. On average, an options trader can be up to speed with the Weirdor strategy in a matter of 3 to 6 months. The method can be taught in less than 3 months, but it is recommended to go through and back-test various market situations over a longer period. Many new options traders start with the IC, as it looks safe enough, yet they often tend to either over trade i.e. adjust too often based on any Delta slant or on the contrary under-trade and adjust too late. In comparison, we shall here learn to here apply a quasi-mechanical method with pre-determined reactions to keep the position profitable. The Weirdor is also the perfect steppingstone before moving on to other interesting income trading techniques like the M3 Butterfly (John Locke) that is a little too complex to tackle as a beginner.
Instrument of choice: RUT (Russell 2000), although applicable to most liquid underlying symbols, however generally narrowed down to indices (SPX, NDX).
Note: it is possible to substitute indices for lower priced trackers like IWM and SPY (hence lower margin requirements). SPY is extremely liquid. However one must then account for dividend distributions and the cost of commissions is then quite high in relation to potential profits so it only makes sense to do so to learn the technique with 10 times less capital.
The Weirdor’s required margin should remain stable in the region of US$17000-US$18000. We shall thus accept a slightly lower return on account ($20000). Note that margin is here estimated for a Reg. T account, compared to a PM account ($100k+). That initial margin can however vary if one does not follow the guidelines to the letter. As said earlier, for training purposes, one can also use IWM for a ~ $2000 margin.
The Weirdor’s look
The rationale of the Weirdor’s strange “JEEP” appearance as per image below (the name was coined by Jim Riggio at Capital Discussions) is that the market is generally at least marginally bullish over the long term, i.e. it goes up 75% of the time, so it is meant to be lightweight on the up side compared to a typical balanced Iron Condor. So we shall note that while remaining delta-neutral, one shall not defend the call spreads, particularly in the first few weeks of the trade.
The Weirdor exhibits lower Gamma risk than a typical Condor so the adjustments are less frequent, hence also less stressful. We shall see that simple high / low alerts are sufficient to monitor the trade in its first week. The adjustments are quasi mechanical.
How to get started with the Weirdor ?
Learning to trade the Weirdor is relatively easy for most and in many cases, options traders do not actually need more. However, we at OM take it as a stepping stone to then learn other powerful trading techniques that then provide better portfolio diversification (see Typical Programme). Also while learning something new, it is highly recommended to keep deepening the knowledge on the Weirdor, exchanging with the OM Community and / or the Coach in a minimal retainer or alert service for a while.
For details on OM’s click: Coaching or Mentoring. Then feel free to contact us or simply use the Skype button below to leave a message to book for a free assessment and plan forward. A Booking calendar is also available.