by Duncan Burke
What exactly is the <a href="http://www.youtube.com/watch?v=8j7JdysThY8">iron condor</a> ? This strategy profits when the stock or index being used does NOT make significant moves. Savvy option traders try to implement trades that are best suited for - and that take advantage of - whatever type of movements are occurring in the market. But often their contracts expire worthless because there's no significant movement at all. Iron condor traders love this type of market environment as it is the ideal situation to pull profits from the markets.
Creating the iron condor can be thought of as merging one short and one long strangle paired together at two outer strikes. 'Strangles' can be both bought and sold and it is a trade where both a put and a call option is purchased some distance away from where the underlying is trading at. When you sell a straddle - quite a bit of premium credit can be brought into the account as you are selling options that are right 'at the money' - opposed to when you sell a strangle the premiums are quite less since you are selling options that are farther away. A different way to imagine the iron condor option trading strategy is to think of it as 2 credit spreads - a bull put spread and a bear call spread. Your paired positions are the condor's wings.
For example, let's take a look and we find that the SPX is trading at around thirteen hundred and so we buy the jan call option at 1375 bringing in right around $245, and at the exact same time we buy the january put option for $4.38. As long as you have chosen a broker that is options friendly - you just need to make sure that you have the funds available to margin the difference between to the strikes. In this example you would need around thirteen hundred dollars or so for this spread trade.
The calculation would be:
Thirteen hundred seventy at $2.50
1360 at $4.55
This means, your premium credit = 2.00
($15 - $2 = $13) x 1 spread x 100 units = $1,300
Just as long as the underlying stays below the short strike levels the entire credit that was pulled into the account can be kept - which can be a very good short term return.
This example described is one of the wings of the iron condor spread trade - and it is the call spread side of the trade. To create the full fledged bird and your full iron condor options strategy, you would simply add a put spread in the same way.
Iron condors are great trades and be traded consistently with very profitable results - and some traders use this strategy as their only trading strategy to pull income from the markets. Of course, however, there are potential risks with this strategy - just like any trading strategy.
Some of the essential elements to trade the <a href="http://www.ironcondoroptiontradingstrategy.com">iron condor</a> strategy effectively is to understand how to pick the underlying - knowing how to enter, exit and adjust properly - and knowing when to get out of the trade if the position starts to go bad. Especially the proper management and adjusting. If you don't understand this strategy fully - or if you have a game plan that you will follow strictly - could be your downfall and wind up costing you significant losses. Try to guess how I know.
To understand a much 'better' technique to trade the <a href="http://www.youtube.com/watch?v=8j7JdysThY8">iron condor</a> for steady income, click over to this <a href="http://www.ironcondoroptiontradingstrategy.com">iron condor</a> site for clear cut step-by-step blueprint on how to correctly place, deal, and ADJUST these trades.
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New Unique Article!
Title: Riding The Iron Condor Spread - Befriending The Iron Condor Strategies To Bring In Option Cashflow
Author: Duncan Burke
Email: theeinfoco@gmail.com
Keywords: iron condor,option trading,stock trading,stock,trading,forex trading,forex,currency trading,stock market,investing,investment,finance,personal finance,wealth building,business
Word Count: 574
Category: forex
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