The conventional wisdom about iron condors and other market-neutral option positions goes like this: “These strategies are profitable when markets are not trending in one direction. They are unprofitable during strongly trending markets.” Even Investopedia opts for this one-dimensional explanation:
This strategy is mainly used when a trader has a neutral outlook on the movement of the underlying security from which the options are derived.
There are two problems with the conventional wisdom. The first is that…
Last weekend, we noted that the next phase of this bear market will likely be driven not by U.S. financial companies or by energy prices per se, but rather by the effects of the American slowdown being felt by the rest of the world. A front page story in the WSJ on Friday noted the falling Eurozone GDP as additional evidence of a global slowdown.
Looking forward, we expect continued bullishness in equities next week as the lack…
Option Strategies for Directionless Markets: Trading with Butterflies, Iron Butterflies, and Condors
Anthony J. Saliba, with Joseph C. Corona and Karen E. Johnson (Bloomberg Press: 2008)
When traders are first exposed to spreading strategies like butterflies and iron condors, one of the first questions they always ask us is, “Can you recommend a book that goes into these strategies in more detail? Where can I learn more?” We’ve had to reply that there aren’t really any books that discuss iron…
Tuesday, February 17, 2009
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