| Iron Condor - Get Ready To Lose It All Unless You Do This |
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| Written by Ten Nino |
| Tuesday, 15 June 2010 15:24 |
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A great investment strategy for traders looking for a way to generate consistent profits without having to be a stock picker or know which way the stock market is headed is an option trading strategy called the Iron Condor . This is an option trading strategy that performs best when the underlying being used is trading in a range - however it can also generate good returns in trending markets as long as the iron condor trader understands how to correctly manage the trade.
A great investment strategy for traders looking for a way to generate consistent profits without having to be a stock picker or know which way the stock market is headed is an option trading strategy called the Iron Condor . This is an option trading strategy that performs best when the underlying being used is trading in a range - however it can also generate good returns in trending markets as long as the iron condor trader understands how to correctly manage the trade. 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. The iron condor is considered a high probability trade - meaning that based on the mathmatical probabilities these trades should win most of the time. Even so, these trades also have a very poor risk to reward ratio, so in order to win long term using this strategy, the iron condor trader needs to have a solid adjustment plan in place for the few times through out the year when the underlying being used will move towards and threaten one of the outer ranges of the trade. 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 iron condors. Stop by Ten Nino's site where you can find out all about how to trade the iron condor strategy for consistent monthly cashflow. |