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Iron Condor Spread

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Smile & Frown

There are two faces to the iron condor spread.

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.

Well, of course the rookie option trader instantly falls head over heels in love with the iron condor – and why shouldn’t they? it’s almost too good to be true!

The problem – is that it is too good to be true.

Sort of.

See, the iron condor IS a magnificent trade – and it DOES take very little time to manage – and it CAN kick off outstanding returns.

The problem, is that what the rookie option trader WASN’T told upon first meeting the iron condor – is that the iron condor spread has a nasty side that shows it’s face every so often. And it’s nasty enough to completely destroy everything good that the ‘good side’ of the iron condor can provide.

Iron condors have a high probability of success – however that high probability of success comes at a steep price – which is an absolutely horrendous risk to reward ratio. And if not properly managed the returns that the iron condor can produce can be completely obliterated by just one bad month if the trade is not managed properly.

The key to winning with this strategy is to understand that the the iron condor does have a dark side – but as long as a trader has the proper knowledge to manage those tantrums and fits that are occasionally thrown by the iron condor – this trade really can turn out to be all that it’s cracked up to be.

Creative Commons License photo credit: Steve Snodgrass

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