Iron Condor - Owe, That's Gonna Leave A Mark...
The iron condor is one of the most popular option strategies available to traders. Unfortunately, it is also possibly the most dangerous.
The thing is, when rookie option traders first hear of this strategy (perhaps from a late night infomercial or free hotel seminar conducted by slick salesmen touting it as the greatest thing since sliced bread) - very few seem to able to resist the temptation to jump right into trading them head first - with actual real hard earned money on the line - and usually way too much of it.
And unfortunately what always seems to happen to a high percentage of them is that they promptly wind up getting their trading accounts demolished and their heads handed to them on a platter.
Now stop.
Before you start to get the wrong impression, please, let me clarify something here.
I absolutely LOVE iron condors. ALOT. In fact, the iron condor is right up there as one of my favorite trading strategies.
And yes - I really do think it's a great and dependable way to trade.
And yes, I absolutely believe all those stories and claims you hear swirling around about iron condors generating ten percent plus monthly returns and providing trades that have the probability of winning somewhere in the range of eighty to ninety percent. In fact, I KNOW those stories are true because I see it happen all the time in my very own trading account.
The problem is - there is something big that is being left out of all those claims and stories - and this something is causing way too many fresh new doe eyed option traders to misunderstand this strategy right from the beginning and blindly jump into them with completely wrong expectations.
See what isn't being talked about with iron condors is that while yes, they can provide great monthly returns and high probabilities of winning- they also come attached with a horrendous risk to reward ratio - sometimes as poor as 10 to 1!
This means that in order to achieve those 80 to 90 percent probability trades - you need to risk ten dollars to make just one - or to be more realistic - you need to put at risk $10,000.00 for the chance to make just $1,000.00.
And as my mammy used to say (God bless her soul) - that risk to reward ratio is 'an awful bad egg'. In fact, it's an honest to goodness stinking rotten deal.
Just do the math. With a risk to reward like that, even with the great probabilities and wonderful monthly returns - before long a problem month could come along and completely wipe out your entire account!
Nevertheless...
There is still hope...
Because - as I wrote previously - I REALLY DO like the iron condor strategy.
Over the last ten years it's been extremely profitable for me.
So apparently, even with that atrocious risk to reward quandary, there must be a method to generate consistent income with this trade.
And there is.
It all has to do with the management of the trade.
That risk to reward problem quickly becomes a complete non issue as soon as you educate yourself on the proper way to initially set these trades up and how to correctly manage and adjust them.
You just need to arm yourself with a small amount of trading know-how. A few iron condor tricks that will allow you to quickly and easily adjust yourself out of sticky situations and smother any problem month threat that comes along, permitting you to experience the iron condor strategy for all that it's 'really' cracked up to be.
Article Source: FxTradingStock.com
About the Author
To learn how to properly trade the Iron Condor Strategy for consistent monthly income, go to this Iron Condor Adjustments website and watch our Free Video and get our Free Report.
by: Ted Nino
Total views: 29
Word Count: 646
Date: Sat, 10 Jul 2010
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