How Dangerous Is The Condor?
Thank you for reading this article on trading options. Today we will be concentrating on the risks of trading Iron Condors.
This particular strategy can be very fruitful, but it can also lead to very large losses to your trading capital. Trading condors very close to expiration is one of the riskiest ways to trade them.
In this article you'll find an embedded video. This video is a good demonstration of how not to trade Iron Condors. Specifically, this video is on trading an Iron Condor on the SPY with less than one month to go for expiration. The problem with this strategy is that the underlying symbol does not have very much time, does not have very much credit, and does not have very much wiggle room. Often times the option trader will bring this type of trade into the last week of expiration, and the underlying will be right next to the short strike which is extremely dangerous. This is a typical Iron Condor that is taught in 99% of the courses on the Internet. This is Iron Condor that can ruin your life.
As this option spread gets closer to expiration it becomes more volatile and more risky. Even though the trade might be yielding a profit, the option trader can lose all of the profit and more in one single day. This is because of the option Greeks. The Gamma is extremely high which causes the Delta position to change in an uncontrollable manner. Please watch the video at the six minute mark to understand better what I am talking about.
Well, let's exit this article by saying a couple more things. First of all, the condor can definitely make an option trader some decent income, but on the other hand, one bad month can also wipe out a trading account. It's not an option strategy to mess around with if you do not have the proper training. There are very few option traders who do this trade in a low-risk style. Most option traders take on hazardous risk each month by using this reckless strategy.
Article Source: FxTradingStock.com
About the Author
To learn a conservative way to trade options, please visit San Jose Options to get started in the right direction. For free Option Trading Videos click here.
by: Donald Scott
Total views: 41
Word Count: 357
Date: Fri, 28 May 2010
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