When you think back to the analogy of the horse race, you find a number of variables that affect the value of the bet before the end of the race. Time is a major consideration. Position during the race is crucial. But there are other elements of the race that affect the nature of the bet as well.

For example, acceleration changes everything. What if the horse bolts out of the gate far ahead of the pack? Suddenly the odds change dramatically in his favor. So you have to also keep track of acceleration. How about other conditions that could change during the race? A sudden trip could break the horse’s leg. It could start to rain. Lightning could spook the horses. The jockey could fall off. The possibilities go on and on. Depending on the severity of the change, you want some idea of how it affects your trade for better or worse.

What is the one consideration that seems to be gone from the picture? The horse itself. Maybe you picked the horse because you know horses. You grew up with horses. The jockey is your son. Maybe you picked the horse because, based on his past performance you think he is due to win. Whatever the reason you had for choosing the horse initially, it becomes irrelevant and superfluous once the race starts. You are now playing the odds. The odds are set by the bookies and the other gamblers. You have to deal with that reality now. If you hold your ticket until the end of the race, that’s one thing, but if you are trading during the race, you are trading the odds or, in other words, you are trading the math.

Options trading is ultimately all about trading the math. Once you are in a condor trade, you don’t care about the market, the news, or the price direction—you care only about the math. Trading stocks is also trading math but on a much simpler level. The reason that inspired you to buy a particular stock, whether it came through fundamental or technical analysis, takes a back seat to profit and loss. If your stock starts to lose too much money, you have to decide to stay in or get out. Your risk tolerance dictates your trade, not the stock. Your opinion about the company, the curves and indicators, all evaporate into nothing when you see the negative dollar signs getting larger and larger. You realize that the market doesn’t care what you think or the price you paid for the stock. You now have to make a decision. Are you willing to lose $1 more or not? At this point you are trading math, period.

The same considerations occur when the stock goes up in value. Are you trying to capture a certain profit or are you just going to ride the trend or keep the stock through retirement? Here again, you are trading the math. The nice thing about options is that all these considerations have been quantified and given names. Time decay is called Theta. The effect of a change in price is called Delta. Acceleration is Gamma. Worry is expressed as Vega. The name for this group of “derivatives” is the Greeks.

In order to trade any options, it is useful to know how these work. For the topic of this book, you are interested only in how they affect condors. Knowing these risks and challenges in advance helps you get into a good trade. Keeping track of these risks and callenges during the trade helps you manage risk.

Profiting with Iron Condors Options – Michael Hanania Benklifa
ISBN 0-13-708551-6