Iron Condor - Get Ready To Lose It All Unless You Do This
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.
Two individual credit spreads make up an iron condor. Each credit spread is placed above and below where the stock or index being used is presently trading at. Above the underlying is a bear call spread. Below is a bull put spread. This trade can be initially placed either as one whole iron condor spread - all four legs together - or as separetly placed credit spreads.
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.
This type of trading strategy provides a very high probability of success - and can be profitable most of the time. However, it is important to note that the risk to reward ratio of these trades are NOT ideal - as one losing month, if not properly managed, can wipe out an entire years worth of gains. Learning how to set correct profit targets, exit and stop loss points, as well as gaining the appropriate knowledge on how to properly manage and adjust an iron condor position that is getting into trouble is vital to long term success with this trade.
When I first began trading this strategy, I found myself winning month after month - UNTIL - suddenly I hit a bad month and wound up giving everything back and then some - simply because I didn't take the time up front to properly learn how to manage and adjust.
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.
Article Source: FxTradingStock.com
About the Author
To find out more about this strategy, visit Ted Nino's site on how to correctly enter, exit, manage and adjust an iron condor for consistent income.
by: Ten Nino
Total views: 67
Word Count: 514
Date: Mon, 14 Jun 2010
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