Trade 14- Buying Cheap or is that for the Birds?

A Curate’s Egg or Short Iron Condor?

A great many people trade Iron Condors on the basis that it is limited risk with moderate reward. Typically I would not take these if I could not get a credit of 17 for risk of 33(max loss=50 minus premium taken in). In this example it’s a credit of 32 for risk of max loss 68. But this is NOT the standard IC,we are buying not selling the spreads on the basis that one side could go all the way. 32 could thus give us 68,or better than 2:1.

What’s the Downside? Where’s my Break even?

So assuming we are going to run this to expiry, we need the FTSE to be below 7068, or above 7482,those are your break even points. Outside of this range you are into profit. However we could see a number of scenarios whereby this could profit. Realistically it’s unlikely we’ll see FTSE move down so far, so maybe the upside is where the action is.

Hope This Makes Things Clearer

Due to limited space and the desire to present bite size posts, we often link our readers to outside sources. I like this from Investopedia http://www.investopedia.com/articles/trading/08/flock-to-iron-condors.asp There are sites dedicated to Iron Condors-as regular income from the premium taken in. Some sites suggest ‘legging in’ which as we have shown can have its pitfalls. I would never consider taking these trades in low volume months like August or in times of very low volatility-like we have now. Hence we are taking the other side of the trade. These can be entered for a limit price, as a recognised strategy. I’m not confident this can do much, though and as I am short FTSE I have vested interest in seeing it plummet up to 10%! 1% would be peachy,though.

I’m not a good trader.