Add training workflow, datasets, and runbook
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The Retail Trader versus the Pro
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Iron condors are very popular trades among retail traders. These days one
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can hardly go to a cocktail party and mention the word options without
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hearing someone tell a story about an iron condor on which he’s made a
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bundle of money trading. Strangely, no one ever tells stories about trades in
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which he has lost a bundle of money.
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Two of the strengths of this strategy that attract retail traders are its
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limited risk and high probability of success. Another draw of this type of
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strategy is that the iron condor and the other wing spreads offer something
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truly unique to the retail trader: a way to profit from stocks that don’t move.
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In the stock-trading world, the only thing that can be traded is direction—
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that is, delta. The iron condor is an approachable way for a nonprofessional
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to dabble in nonlinear trading. The iron condor does a good job in
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eliminating delta—unless, of course, the stock moves and gamma kicks in.
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It is efficient in helping income-generating retail traders accomplish their
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goals. And when a loss occurs, although it can be bigger than the potential
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profits, it is finite.
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But professional option traders, who have access to lots of capital and
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have very low commissions and margin requirements, tend to focus their
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efforts in other directions: they tend to trade volatility. Although iron
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condors are well equipped for profiting from theta when the stock
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cooperates, it is also possible to trade implied volatility with this strategy.
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The examples of iron condors, condors, iron butterflies, and butterflies
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presented in this chapter so far have for the most part been from the
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perspective of the neutral trader: selling the guts and buying the wings. A
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trader focusing on vega in any of these strategies may do just the opposite
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—buy the guts and sell the wings—depending on whether the trader is
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bullish or bearish on volatility.
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Say a trader, Joe, had a bullish outlook on volatility in Salesforce.com
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(CRM). Joe could sell the following condor 100 times.
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