Keith Fitz-Gerald

Lock in 'Iron'-Clad Profits with Condors

by Keith Fitz-Gerald   09/03/08

3 REASONS IRON CONDORS GIVE YOU AN EDGE

An Iron Condor is non-directional. That means you aren't dependent on the market moving up or down to profit. In fact, the market can go nowhere and you can still profit!

This makes it an extremely stable trade. It's also one that doesn't require a whole lot of attention once you initiate it, which makes it ideal for people who have better things to do all day than sit in front of a computer screen or who aren't professional traders.

Second, an Iron Condor is an income spread. That means you get paid for taking the trade, which is in direct contrast to buying puts or calls where you have to fork over the moola to make it happen. As an added benefit, your broker will pay you interest the moment it hits your account. This is like getting a 2-for-1 deal at your favorite ice cream shop!

Third, an Iron Condor can give even a new, totally inexperienced trader a statistical edge that can't be achieved by buying puts and calls alone. This dramatically increases your probability of profit and your returns at the same time. In fact, it's not uncommon to regularly place trades with up to a 90% probability of profit and to achieve win rates upward of 70%-90% over long periods of time.

HOW TO TRADE AN IRON CONDOR

An Iron Condor, despite its fancy-pants name, is really a simple trade. Essentially, what you are doing is buying and selling a combination of options that "boxes in" the markets. As long as they close between the two edges of the "box" that you make, you profit.

Here's an example.

The XYZ index is trading at $100. You sell one May 150 Call for $1 and buy one May 155 Call for 50 cents. At the same time you sell one May 50 Put for $1 and buy one May 45 Put for $50 cents.