Let's go over the pros and cons of the iron condors trade as it is becoming a popular option trading strategy. While this strategy can produce impressive, passive results, it's important not to forget that along with this trade come some potential pitfalls that every trader should get to know and understand.
The iron condor is simply 2 individual credit spreads on the same underlying - a put vertical spread and a call vertical spread. It is really this simple of a strategy, even though the name of it might be misleading.
If someone asks if this is a strategy that is good for the novice option trader, the answer can be both no and yes - as it is a simple trade to place and manage - but one needs to be fully aware of the risks that are involved.
A well known potential hazard of the iron condor strategy is it's risk to reward set up. The risk to reward on these trades can be terrible - allowing for a potential maximum loss in the trade that can be many times greater than the possible reward. For example, lets say we place an iron condor trade where the maximum possible gain is $5,000. The risk to reward on this trade can be just terrible - for example out max possible loss COULD be around twenty five thousand dollars or even more.
Now while the above example might scare some off from trading the iron condor strategy - it really shouldn't - because even though there is an awful risk to reward ratio that can come with these trades - as long as one uses the proper management and adjustment methods - this really doesn't need to be a problem.
The final, bottom line is that as long as the trader has educated themselves on this trade and they have learned how to correctly manage and adjust the iron condor when things go awry - this trade can be a wonderfully reliable way to create monthly income from the market.
The iron condor is simply 2 individual credit spreads on the same underlying - a put vertical spread and a call vertical spread. It is really this simple of a strategy, even though the name of it might be misleading.
If someone asks if this is a strategy that is good for the novice option trader, the answer can be both no and yes - as it is a simple trade to place and manage - but one needs to be fully aware of the risks that are involved.
A well known potential hazard of the iron condor strategy is it's risk to reward set up. The risk to reward on these trades can be terrible - allowing for a potential maximum loss in the trade that can be many times greater than the possible reward. For example, lets say we place an iron condor trade where the maximum possible gain is $5,000. The risk to reward on this trade can be just terrible - for example out max possible loss COULD be around twenty five thousand dollars or even more.
Now while the above example might scare some off from trading the iron condor strategy - it really shouldn't - because even though there is an awful risk to reward ratio that can come with these trades - as long as one uses the proper management and adjustment methods - this really doesn't need to be a problem.
The final, bottom line is that as long as the trader has educated themselves on this trade and they have learned how to correctly manage and adjust the iron condor when things go awry - this trade can be a wonderfully reliable way to create monthly income from the market.
About the Author:
Tho' iron condor trading can be a hot line of attack to get passive earnings, of course like any trading system there are possible hurdles investors should be cognizant of before trading this way. To gather more about how to fittingly trade this approach, go to this iron condors site now.
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