Whenever the Fed speaks, everyone stop trading and listen. Stocks markets will normally go to silent from busy mode, at least relatively. After the announcement, everybody will either scramble to buy or sell. That’s where the excitement is and it’ll be more exciting if the people freak out to the direction of your prediction. Today, Wednesday 31st Oct 2007, we’ll see if Bernanke is obedient enough to follow the crowds’ urge to cut the rate again. Most people think it’s likely. And what’s the quantum? It’s going to be a quarter or 25 basis points, so goes the speculators.

The Iron Condor

Besides long or short the stocks or options, there’re more strategies that you can adopt as far as options trading is concerned. Sometimes it’s quite fair in the world of equities trading or investing. The higher the risk the higher the return and vise versa. Iron Condor has a strategy that claims to make good money without costing you the whole day sitting in front of your computer monitoring your position(s) movement.

It’s easy because you only trade once per month with the objective of achieving 10% returns every month using iron condors. Iron Condors what? Iron condors is the strategy adopted by Condor Options designed to help lazy *grin* investors generate consistent 10% monthly returns with just 10 minutes a week of your time.

Condor Options Performance

Before we proceed, let’s take a peek at iron condors performance. If you visit their site, the iron condor strategy actually generates an average return of 23.94 percent (based on the disclosed positions since June 2007). That’s not bad considering the fixed-deposit from the bank next to your house is only giving out a pathetic single digit return.

Iron Condor’s strategy in making money

It’s easy, convenient and profitable all right but what is this options trading strategy? After reading it I think its equivalent to the spread strategy. Everything boils down to the time-value of options. Just like warrants, options expire within certain period of time. Instead of beating (or control) the stocks price which you do not have the capability to, you instead concentrate on the time-value. The basic fundamental is quite simple. Instead of a buyer, you become a seller.

Assuming stocks or indexes normally trade within a range, you sell options at the top and bottom of the range with the hope that it will expire worthless (same expiration month) – and you keep the credit (the money). Multiply that with more contracts and you can make more money. A simple method but it does come with some risk. The risk is when the stocks or indexes make some huge movement up or down and infiltrate into the range predicted of which you might get assigned or exercised. To tackle this risk, the strategy is to buy options a bit further (out of money) above and below the predicted range.

Since I’ve deploy the same strategy before I know it works. But if you’re thinking of making 100, 200, 300 or higher percent profit trading options, this strategy might not be your choice. Furthermore I like the excitement of very volatile movement as demonstrated by Apple Inc. and Google Inc. because I can put my fear and greed to test (crazy me).

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October 31st, 2007 by financetwitter

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