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The benefits of using Iron Condors in options trading

Iron condors are very versatile; they let you trade across multiple expiration cycles at one time which gives you exposure across the whole market spectrum. They offer traders exposure to slow-moving sideways trending markets and fast volatile markets.

Low maintenance

There is nothing worse than watching your positions all day long. Iron Condors are usually only traded with the current month expirations, which means you do not have to watch them often. Also, the position size is smaller than other strategies, so it’s much easier to keep track of things.

Trade across multiple expiration cycles at one time

It doesn’t matter if the market is hot or not; traders can always find some open iron condor opportunities. Many people also like trading double calendars and double diagonals simultaneously for extra profit potential (if done correctly).

Huge profit potential in low priced options

The great thing about using Iron Condors is there is no need to spend $1 on each option contract because they create their buying power through short options. So you can trade a ten lot for as little as $100 or less.

Low risk

The maximum loss on the trade is defined from the start. If you do not like that maximum loss, then you don’t even have to enter into that particular trade (you might want to adjust your trading plan accordingly)

Unlimited Gain Potential with proper position sizing

If you are right about price action, there is no limit on how much money you could make if all goes well (this assumes appropriate position sizing, of course). You would make money until one party decides to exercise their option at expiration (don’t forget about the possibility of assignment during earnings season too). Exercising an option means they need to buy or sell shares to fulfil their obligation; they may exercise because it benefits them financially to do so.

Trade on fear and greed

Most of the time, traders fear that share prices will go lower (or higher), which creates an opportunity for you. This fear can lead to people selling lower, which means you can buy at a lower price later on down the road. Greed works opposite of fear; when people are greedy, they want to buy high, so the chances are good that they will be willing to pay more later on if they don’t get filled immediately.

Protection against catastrophic events/ market crashes

The most common way options expire worthless is because of some massive cataclysmic event (i.e. 9/11, earthquake, political decisions, etc.). If you own the options outright, then you have a chance to make some money off of that catastrophe because the market dropped so much during those events. Many traders made thousands after 9/11 using this exact strategy.

Low margin requirements

You don’t need to use more than 1 or 2% out of your account as margin for each position because it only uses four short positions, which equates to a total notional value of about 25-50 times less than if you were trading a similar-sized vertical spread or iron condor with all calls or puts. So you can essentially buy and sell ten times as many contracts at once for about the exact margin requirement.

The ability to use multiple price strikes

If you are trading options on broad-based indexes or futures, then you can usually get away with trading iron condors that have more than four legs (i.e. SPY, DIA, NDX). It means you can trade 10L/10S, 20L/the 20S, 30L/30S and so on all at the same time for even better overall risk management.

You don’t need perfect timing

Traders may struggle to know precisely when to enter a position because there is no catalyst involved to cause a move in one direction or another. As long as they choose good expiration dates and manage their positions properly, they have a good chance of being profitable.

In conclusion

Iron condors are one of the most popular strategies for those trading in low-risk markets, and many professionals recommend them for their simplicity and ease of use. However, the benefits are not always worth the extra cost compared to other strategies used by stockbrokers such as Saxo.

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