| Iron Condor - Don't Trade These Birds Unless You Understand This |
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| Written by Ten Nino |
| Tuesday, 02 November 2010 15:20 |
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For all the investors out there who can't pick market direction to save their lives, here is a good trading strategy worth considering: it's called the Iron Condor Option Strategy. This trade is ideally suited for non trending markets, however it can also product great results in a moving market just as long as the investor who is trading this strategy understands it thouroughly and has been properly educated on how to work the trade and most importantly how to correctly adjust.
For all the investors out there who can't pick market direction to save their lives, here is a good trading strategy worth considering: it's called the Iron Condor Option Strategy. This trade is ideally suited for non trending markets, however it can also product great results in a moving market just as long as the investor who is trading this strategy understands it thouroughly and has been properly educated on how to work the trade and most importantly how to correctly adjust. Options are a decaying asset and the iron condor strategy takes advantage of this. Iron condor traders sell options that are outside the expected range of movement and as long as the underlying being traded does remain contained within this predetermined range this strategy can produce fantastic returns in short order. Iron Condors are actually constructed from 2 separate credit spreads - one on either end from where the underlying be used is currently trading at. Positioned above the underlying current trading price is a bear call spread. Positioned below the current trading price is a bull put spread. Depending on the broker being used, these can be placed separately as individual vertical spreads- or together as one iron condor trade. The goal of the trade is for the underlying to stay contained within the 'range' created by the two sold credit spreads. While the trade is on, the underlying can move around on the chart as long as it stays contained within this 'range'. It the underyling beings moving around too much, or moves too far in either direction, the trade will become threatened and the trader will need to take some sort of action to manage and/or adjust. Most of the time, iron condors can be profitable as they offer a high probability of success. That being said, it is extremely important for the newer iron condor trader to understand the potential danger of these trades as the reward/risk ratio is very poor. One losing trade can completely destroy a trading account and eliminate many months worth of gains. This is why it is so important to have a solid iron condor management and adjustment plan in place before getting started trading this strategy. These can absolutely be profitable over the long run IF one knows how to correctly place, manage and adjust. Many iron condor traders grow over confident because they win for a number of consecutive months using this trade. Then they are woken up as the inevitable problem month comes along and destroys a significant portion of the their trading account. This could have been averted if they had only properly prepared before hand and learned how to correctly place, exit, manage and adjust these trades. If I hadn't been so hypnotized by the probabilities that come with this trade, I would have taken the time to step back and make sure I was properly prepared before jumping in all the way with the Iron Condor strategy. If I had known of the various hedging and adjustment techiniques such as the ones taught at our website, I could have saved myself from significant losses and pain. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Learn more about the Iron Condor. Stop by Ten Nino's site where you can find out all about how to trade the iron condor strategy for consistent monthly cashflow. |