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.
When we look at how the iron condor is put together, we can see that in fact this trade is just two separate credit spread positions placed above and below where the vehicle being traded is currently trading at. Below the underlying we find a bull put spread while above we find a bear call spread. Some iron condor traders prefer to place their iron condors as one complete trade – all four legs together – while other traders prefer to leg into the position, placing each particular credit spread one at a time.
As long as the vehicle being traded remains within the range created by the iron condor, the position should wind up being profitable. If the trade was set up correctly, there should be ample room on the chart for the underlying to move around. However, if the underlying makes a larger then expected move in either direction, the iron condor position will most likely need to be managed and adjusted in order to prevent losses.
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 this strategy. If I had known of the various hedging and adjustment techiniques such as the ones taught at this Iron Condor strategy website, I could have saved myself from significant losses and pain.
Looking to learn more about how to trade the iron condor, then visit www.ironcondoroptiontradingstrategy.com to find the best free tools and training.