Trading With Iron Condor Options

There are several different types of option spreads such as verticals, calendars, butterfly, strangles and iron condor. They all have different ways of generating a profit and used in different trading scenarios. This article, however, is going to explain the benefits and when to use one of these option spreads, the iron condor.

First, in my opinion the iron condor should only be used under the following conditions.

• When the volatility (VIX) is below 40
• VIX is channelling between 25 or 40
• Credit of $0.50 or greater ($0.70 is ideal)

Second, the iron condor will produce money faster than other option spreads but carries more risk. Since you are selling this spread, it is a credit spread and therefore receive your money when you place your trade. However, since the iron condor has a low and high trading range, the stock can move out of this range causing the trader to lose money and either will have to close out the trade or make adjustments. This is less likely to happen if the volatility is below 40 and the trade is made and held during non news changing events for that stock or index.

Third, the condor can be used on any stock or index however, I recommend using it with high volume traded indexes such as the DIA or SPY. Since these indexes have very high volume it is much easier to find the desired trading range. If the stock is not highly traded then it may be more difficult to set up your trade. For example, you want to purchase a 27 call, but only a 20 or 30 is available. When this is a case, it will make it more difficult to meet the credit spread of $0.50 or greater.

Finally, the iron condor makes a great trading strategy when combined with other monthly trading strategies such as a combination of another condor used on a different stock or index or a different but complimentary spread to the condor. This combination makes a nice options portfolio and will be easy to manage and allow less time to monitor.

Financial Spread Trading - The Dangers of a Demo Account

Anyone starting out financial spread trading is usually advised to begin by 'paper trading'. This is where you use pretend money to place your trades rather than your hard earned cash. Just about every financial spread trading company will allow you to open a demo account and to trade with pretend money. On the whole, this is a great idea as you can place your trades safe in the knowledge that if things go badly wrong you won't lose any 'real' money. Equally, of course, any successful trades you make only earn you 'pretend' money. Nevertheless, if you are able to say, increase a 100,000 account to 150,000 in a short space of time it does give you immense confidence.

However, I can tell you from personal experience that this sort of success does not guarantee you success in the real world of financial spread trading. And the reason for that, in my opinion, can be put down to one over-riding factor and that is 'emotion'.

Risking 100, 200 or more on each trade you place on a demo account is easy. You place your trade and then let the market get on with it. You apply your chosen strategy and either make a profit or a loss. There is absolutely no emotion involved. Transfer that to the real trading environment and there is absolutely no comparison. Suddenly emotions come in to play. You will be trading with real money and as a result will experience all the emotions that go with it. You will feel fear of losing your money in a losing and greed of wanting more in a winning trade.

So whilst using a demo account is a good idea for testing out your strategies please do not imagine for one moment it will be the same in the real world of financial spread trading.