by Johnny M Junior
Overview: Duane gives an overview of a couple of the most popular option trading strategies: Double Calendars and Iron Condors. He points out the risks involved with these strategies and why they may not work so well in volatile markets.
A Double Calendar is another typical trade also based on your hope that the market does what you want it to over time. You gather some premium around the at-the-money strike. If all goes according to plan your profit return and your risk profile begin to converge.
All well and good until something unexpected occurs, like a big change in volatility. Now suddenly what began as an attractive-looking trade has turned into something problematic.
Iron Condors are one of the most popular trading strategies in use today. The Iron Condor is designed so you can collect some premium around the at-the-money strike price, and if the options expire without any worth, you get to keep it. This might sound awfully familiar by now. Iron Condors include a put side credit spread and a call side credit spread.
Just as with the other very common trades, when the prices move a lot over time or volatility suddenly changes, what seemed like high-probability trades start to look highly questionable.
If the market threatens to overrun your credit spread and it looks like you might end up losing your entire investment, you might want to close out the trade even at a loss. If the price keeps moving over time, you may have no better choice to make.
You may already know that these popular strategies are precisely the ones taught by most options trading advisors and educational groups. The bottom line with these approaches is that they leave you hoping to keep your premium. You sit completely at the mercy of the market hoping price and volatility stay constant over time. Today's markets increasingly seem disinclined to conform with such expectations. But that usually doesn't matter because, after all, these methods are tried and true. The problem is that they were tried and found true in very different market conditions than are prevalent today.
There's another way to trade where instead of worrying about making adjustments when you're in a critical area and close to expiration and "panic time", you can construct a trade that's intended to be adjusted.
You can construct a trade that's intended to let you take money out of it in a much safer fashion -- where instead of being right around the current at-the-money price, you're a good deal away from it. You're away from the trouble areas of all these kinds of trades, and collecting premium out of the trade as time goes by.
That's really what we do here at San Jose Options.
We analyze common option trading strategies, figure out their strengths and weaknesses, and come up with ways to make them safer and more effective. We've been doing this for years now.
If you think this kind of approach is interesting, take a look at joining us at San Jose Options and start enjoying what we call "Max Safety and Max Reward". It's a better way to trade.
Propel your <a href="http://sjoptions.com/options-learning.html">Options Learning</a> to a higher level and join the Daily Follow Along at San Jose <a href="http://sjoptions.com">Options Mentoring</a>.
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New Unique Article!
Title: Popular Options Strategies: The Risks Involved - Part 2
Author: Johnny M Junior
Email: sjoptions@yahoo.com
Keywords: finance,business,stock market,investments,money,options,futures,forex,learning,education
Word Count: 525
Category: forex
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