There are two faces to the iron condor. And thankfully for all us iron condor traders - neither face belongs to Babs. However, on second thought - it might be even worse...
The first face is the one most new traders are introduced to. When the iron condor and the rookie option trader first meet - usually the picture that is painted of the iron condor is one of magnificence - grandeur - a wonderful, little known, very difficult to lose from investment secret that has been hidden from the general public by market makers who didn't want to let the cat out of the bag. A trade that requires just a few minutes per month to manage - that can kick off incredible returns of over ten percent per month, and on and on and on.
Of course, new option traders go gaga over this strategy - and who could blame them. It seems to be a trade that's almost too good to be real.
And sadly, sooner or later (mostly sooner) they discover that it IS too good to be true.
Kind of.
See here's the deal: The iron condor actually IS a pretty incredible trade. It CAN take very little time to manage. And it CAN produce some very consistent and truly outstanding and impressive returns.
BUT - and a big but here - what the gaga eyed option trader who is so head over heels in love with this trade doesn't yet realize - is that this strategy can get a nasty streak every now and then that if not properly handled can completely annihilate all those amazing returns our unsuspecting trader manage to rack up. And then some...
It all boils down to the risk to reward ratio of these trades. They have a high probability of winning many small trades - but just ONE loss can completely DESTROY a trading account. And if the one trading these birds don't realize and fully understand this - and more importantly how to properly manage these trades and how to make effective iron condor adjustments - before long they will get creamed and blasted out of the market possibly with a huge, unrecoverable loss.
The first face is the one most new traders are introduced to. When the iron condor and the rookie option trader first meet - usually the picture that is painted of the iron condor is one of magnificence - grandeur - a wonderful, little known, very difficult to lose from investment secret that has been hidden from the general public by market makers who didn't want to let the cat out of the bag. A trade that requires just a few minutes per month to manage - that can kick off incredible returns of over ten percent per month, and on and on and on.
Of course, new option traders go gaga over this strategy - and who could blame them. It seems to be a trade that's almost too good to be real.
And sadly, sooner or later (mostly sooner) they discover that it IS too good to be true.
Kind of.
See here's the deal: The iron condor actually IS a pretty incredible trade. It CAN take very little time to manage. And it CAN produce some very consistent and truly outstanding and impressive returns.
BUT - and a big but here - what the gaga eyed option trader who is so head over heels in love with this trade doesn't yet realize - is that this strategy can get a nasty streak every now and then that if not properly handled can completely annihilate all those amazing returns our unsuspecting trader manage to rack up. And then some...
It all boils down to the risk to reward ratio of these trades. They have a high probability of winning many small trades - but just ONE loss can completely DESTROY a trading account. And if the one trading these birds don't realize and fully understand this - and more importantly how to properly manage these trades and how to make effective iron condor adjustments - before long they will get creamed and blasted out of the market possibly with a huge, unrecoverable loss.
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