Iron Condor, The Day Traders Advanced Technique
Stock options and the Iron Condor are viable partners that benefit traders. Two vertical spreads, The Bull Put and Bear call have the same expiration. This widely adopted strategy puts them in the same category as many other forms of call spreads. Day traders adopt this technique as it allows for more options in their market
Understanding day trading requires that the trader must be familiar with the terms associated with the Iron Condor. Profit to loss graphs are the definition of the Iron Condor. It is an analogy to its counterpart in animal life. The graph is very similar to a condor with spread wings and very wide. The Iron Condor consists of two parts, the inner options (The condor’s body) and the outer options(The wings).
The “Iron” term originates from the position of the spread. The position is placed across the spot price of the underlying instrument. The underlying instrument consists of one vertical spread below and above the current spot price. Other acondora trading strategies have the same basic shape but these are played differently.
The Short Iron Condor and Long Iron Condor are two examples of trading options. Traders who practice buying and trading short options for the inner body are using the Short Iron Condor technique. This approach consists of trading and buying long options in contracts for the body strikes. This is called out of the money striking. Also, with the purchasing of long options, the trader will also be able to sell contracts for outer wing strikes.
The long Iron Condor approach varies slightly from the short Iron Condor technique. In this strategy to learn to day trade, the trader will buy long options contracts from the outer (wings) strikes. The trader then sells the options contracts for the inner (body) strikes. These strikes are out-of-the-money puts and calls, as observed in the short Iron Condor technique.
The Iron Condor approach has many advantages. One of the most important advantages is that the Iron Condor has the same initial and maintenance margin requirements as the requirements for a single vertical spread. This results in a potential profit from two net credit premiums.
Another advantage is that further transaction charges can be prevented by letting the options contracts to expire. This is a direct result from the positioning of the spot price of the underlying line being between the inner strikes near the tail of the option contract.
As evident from the great advantages given by using the Iron Condor technique, this trading strategy is commonly used in option trading and taught to students attempting to learn to day trade. While only slightly different from other acondora-type trading techniques, the Iron Condor is significantly more advantageous in advanced situations where the buyer desires multiple options in situations when the trader needs to know how to trade options.