Iron Condor - The Option Strategy With Two Different Personas
Mar0
Version:1.0 StartHTML:0000000105 EndHTML:0000008395 StartFragment:0000002285 EndFragment:0000008359 Normal 0 0 1 274 1566 13 3 1923 11.0 0 0 0
There are 2 seperate faces to the iron condor option strategy.
The first one is the face the majority of new option traders are introduced to. The first time the brand new option trader and the iron condor spread meet – the iron condor comes across as a magical trade – completely magnificent – a hardly heard about, practically guaranteed 'can't lose' trading secret that market makers and other 'in the know' have kept hidden from the retail crowd in an attempt to keep the real 'easy money' all to themselves. It's a strategy hailed as requiring very little time to actually manage, one which kicks off great monthly returns (as high as ten percent per month), and has a high probability of success, winning over ninety percent of the time.
So of course, when brand new option traders hear about this, they fall instantly in love with the iron condor strategy – and who can blame them? This is an investment strategy that sounds too good to be true!
And that's the problem. It IS too good to be true.
Kind of.
Here's the deal. Yes, it's true – the iron condor is a magnificent trade. It does require an extremely small amount of time per month to trade and manage. And it can generate some truly amazing monthly returns.
But what new option traders are not being told is that the iron condor spread has multiple personalities. It has a 'dark side' that comes to the surface every so often – generally a few times a year. And this 'dark side' is dangerous enough to completely wipe out all the great and wonderful attributes of the iron condor described above.
See, iron condors are an option trade that do have a very high probability of winning – most of the time. But along with that high probability comes a price – which is a completely awful ratio of risk to reward. And – if these trades are not correctly handled, the 'magnificent' yearly profits that the iron condor can generate could be completely wiped out altogether – and then some – from just one troublesome month.
So the solution to consistent success with this trading method is to realize that the iron condor strategy does have a darker and more dangerous side to it – however – as long as one equips themselves with the appropriate education and 'know-how' required to properly handle the few months out of the year when this trade decides to rear it's ugly head – the iron condor actually can wind up being all it's cracked up to be.
Mail this postPopularity: 2% [?]
How To Trade Options
Jul0
There is a lot of hype surrounding options trading, and for good reason, it’s a good way make a lot of money fast, or can be used to grow your capital consistently month after month.
There’s also a lot of hype about how complicated it is and why you need to spend thousands of dollars on options trading education before you get started. Needless to say this last statement usually comes from trading seminar companies trying to sell your their trading course on options.
Lets cover a few of the basics about options and set you straight about a few important points. Firstly yes it is true that you can make a lot of money trading options, but of course you can also lose money just as fast.
When trading stocks your leverage is 1:1, if you go full out on margin you get get 1:2 leverage, but thats about it. With options it is not as straight forward to calculate the leverage but generally speaking you can get between 1:5 and 1:10 when you buy an option on a stock, or ETF.
So with 1:10 leverage, when the stock increases by 5% your option can increase by approx 50%, and this can happen in just a few days, this is why swing trading strategies using options on stocks is so popular.
However the downside is that a big loss can also happen, if the stock drops by 5% your option can also drop by 50%, at which point you may want to close the trade and save some of your option value, it really depends on what your stop loss and risk.
What I’ve described above is called directional option trading where you are betting on the getting the direction of the stock movement correct, this is highly speculative. Options can also be used in option strategies which are much more non-directional, such as covered call trades, credit spreads and Iron Condors. In these trades there is much less dependance on getting the stock direction correct, but it still matters.
So should you trades options?, in my opinion you should not do directional option trades until you become an expert stock trader 1st. This is because you really need to be very precise with your entry and exit strategy and trading plan, and be very good at technical analysis.
Whereas if you want to do non-directional option trades you don’t need to be such an experianced stock trader to be successful, but of course it does not hurt either.
Learning how to trade options is a very good skill to have, but don’t rush into it and blow out your account. Make sure that you get a good options trading education before you start, and also make sure that you have a very solid stock trading education as well, such one from Top Dog Trading Review.
Mail this postPopularity: 13% [?]
