subject: Iron Condor - Oh Good Lordy, That's Gonna Leave A Mark [print this page] Iron Condor - Oh Good Lordy, That's Gonna Leave A Mark
Out of all the different option spread tactics available, the iron condor technique is possibly one of the most popular, most talked about, the most utilized (or mis-utilized, depending on how you look at it) - and potentially the most dangerous option strategy of them all.
The thing is, when rookie option traders first hear of this technique (maybe from a late night infomercial or no cost hotel seminar conducted by slick salesmen selling it as the best thing since sliced bread) - very few seem capable of resisting the urge to just go diving right into trading them - with way too much real money on the line - and way to little knowledge and know-how .
And it seems that a good amount of them - if not the majority of of them - rapidly wind up having their guts kicked in, their heads ripped off, their eyes poked out, and getting hurt really, really bad.
Now wait.
Before you go and start to get the wrong impression here, please hear me out and let me explain something.
I actually REALLY like iron condors.
I LIKE them alot.
And and also think they are an excellent and exceptional trade.
And all those testimonies and claims we all hear about generating five to ten percent returns a month though barely having to spend any time looking at the stock market - and how the odds are so unfairly on the side of 'us' - the iron condor trader - and how trading iron condors is just like being the 'house' rather than the gambler - yes - I absolutely believe all those claims and tales as well. Truth be told, not only do I believe those testimonies - I KNOW they're accurate - because I experience it myself on a first hand basis in my very own trading account.
The difficulty is this - there is something large that's getting left out of all those claims and testimonies - something that is inducing way to numerous fresh faced green option traders to not fully understand this technique right from the start - and then go blindly jumping into them with inappropriate expectations.
See, even though it might be right that the iron condor and credit spread strategies can kick off yields of over 10 % monthly and that they favour the trader by giving substantial probabilities of winning (in some cases as great as 80 and 90 percent) - what is not getting discussed is the risk to reward ratio of these trades - which can be as large as ten to 1.
Ten to one!
This means that in order for a trader to actually realize those 80 to 90 % probability trades - they will need to be willing to risk TEN times the amount they are hoping to make. For example, they need to risk $10,000.00 for the chance to generate just $1,000.00.
And once you start to look at this more closely, you'll start to realize that the risk to reward ratio on these trades is actually quite a stinking rotten deal.
Because - once you do the math you discover that even with those fantastic monthly returns and that amazing 80 to 90 % probability of winning - all it takes is just 1 problematic month to arrive and bring about a loss that will entirely obliterate the 8 to 9 wins you've managed to accrue - as well as possibly wipe out the rest of your entire trading account.
Nonetheless...all ain't lost...
Like I said earlier, I LOVE the iron condor trading strategy.
And - I make consistently good profits from it on a regular basis.
So obviously there must be a way around that horrid risk to reward ratio and inevitable losing months to make consistent money from this thing.
And certainly, there is.
And it's all in how you manage and handle with the trade.
For as long as you properly educate yourself on the correct approach to first put these trades on, then combine that with a very basic management secret and a few simple adjustment tricks - this risk to reward problem could be totally eliminated and no longer an issue.
You just need to to take some time prior to lunging into the iron condor pool to arm your self with some good old iron condor 'understanding'. Just a few very simple 'tricks and techniques' will do it - so when those bothersome months DO appear (and they definitely will believe me) you'll know exactly what to do to eliminate the danger, manuever yourself out of harms way, and experience the iron condor strategy for all that it's 'really' cracked up to be.
