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Don't Set and Forget Your Income Trades

There is a massive myth out there when it comes to income trades like iron condors.

The myth is that you can somehow put on these trades and collect your monthly returns while you sit on a beach with a fruity drink in your hand.

But if you try to trade that way, your losses will be a lot greater than the money you make.

Income trading is a lot more active and dynamic than you think.

Hedged and Scaled in the Russell

Here is a recent trade we took in IWO Premium.

The Russell had the highest implied volatility in all the indexes, so it made the options the best "sell" if we thought the market was going to stay quiet.

I had one concern, that somehow the RUT would rip higher... since income trades normally start out short by way of their structure, we would be sitting at losses if the market ran higher.

To start off the trade, we picked up some RUT put butterflies but also bought some IWM calls-- since IWM is 1/10th the size of RUT it makes for a great hedging device.


This got us delta neutral. If the Russell ripped higher, we'd take off the calls for a profit, and if we headed lower then we would be in the "sweet spot" of the butterfly spread.

The Russell then sprung higher to around 1140. We were losing money on the put butterflies but made up for those losses with gains in the IWM call hedge.


By putting on hedges at the beginning, it gives us a lot more wiggle room in the trade compared to a more traditional "set and forget" income trade.

From here, we closed out the IWM call buys and picked up another round of RUT butterflies.


After a pullback and a little more chop, the trade currently stands at a return on risk of 20%, when the profits from the IWM hedge are included.


We're now in the "milking" phase, where we try and squeeze some further profits out of the trade before we exit.

Is this more complex? You bet.

But you end up with much better risk adjusted returns, and a lot fewer headaches compared to just sticking on some iron condors and wishing for the best.

If you want to learn how to make trades like this, we're doing an Income Trading Workshop on Tuesday, May 27th. Click here to learn more.

by Steven Place

Steven Place is the founder and head trader at