As the iron condor spread is becoming a more popular way to trade options, it’s important to go over the pros and cons that come with this trade. Before going out and trading this strategy, it is really important to take the time to fully understand this trade from top to bottom.
While the iron condor strategy sounds like an exotic trade – in fact it is really quite simple. It is comprised of two separate credit spreads – a put credit spread and a call credit spread – on the same stock or index.
The simplicity of this trade might be a bit misleading to the newer option trader due to the fact that the probability of the trade is so far skewed in the favor of the trader – it is easy to overlook the potential risks that are involved.
For example, let’s take a look at the iron condors risk to reward. The maximum possible reward these trades can give off can be ‘dwarfed’ by the maximum possible loss. Let’s pretend that we place a trade that has a total potential reward of five thousand dollars. 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.
However – as long as a trader educates themselves and uses the proper trade management and adjustment techniques – this risk to reward ratio 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.
Teddy Baby is an option selling psychotic – exceedingly enthusiastic about trading the iron condor . Visit iron condor Site to find out more about his simple paint by the numbers instructions for playing this strategy for reliable profits.