Binary Options Strategies: Iron Condor
There are lots of simple strategies that imply a sudden price movement or two, in order to capitalize on it, but it takes a true professional to profit from stagnant markets. For most novices, including binary options traders, the biggest problem is when nothing happens on the market, as most of their strategies are rendered worthless. However, there are some advanced strategies that help exploit even this type of situations. The thing is, advanced strategies imply you start buying and selling options at the same time, rather than taking a passive role. When transferred to the binary options playing field, this would encourage a more pro-active approach and is not meant for beginners. The real money is not in buying options, or selling them; true masters at this game do both, combining them in a way that limits their exposure even at the cost of some of the profits.
Iron condor vs iron butterfly
Another complex strategy, similar to the iron butterfly, albeit (arguably) more profitable is the “Iron Condor” strategy. Both were primarily designed to work with regular options, but can easily be adapted to work on binaries as well, provided you have a cooperative broker. The Iron Condor, like its butterfly counterpart, also involves four different options, but this time we have four strike prices instead of just three, with the same maturity dates. Basically, you use two strangle strategies to offset the losses in the worst case scenario and potentially profit from both if everything goes your way. This will cap both maximum profit and maximum losses. Unlike most strategies, iron condor and butterfly enable you to profit from stagnant markets, rather than volatile ones.
This strategy is a bit confusing at first, and many people need some time to figure it out, but once perfected, it should become an essential part of any binary options trader’s arsenal. You need to form a pair of strangles and a pair of spreads, forming a body and a pair of wings, when placed on a graph – hence the name. The call spread should be above the spot value and the put spread is supposed to be below it.
Like with the iron butterfly, the idea is that options will expire worthless, allowing you to keep the money you’ve made by writing closer, more expensive options and holding cheaper out of the money options. If one or two get activated, the others will counter the losses. If they all expire worthless, you’ve won. It is not exactly a foolproof strategy, but it works, especially on stagnant markets. The main drawback is that risks and gains are not exactly well-balanced; quite the contrary, you risk a lot more than you stand to gain, so it is essential to use this strategy carefully. It is considered advanced for a reason. Applying it on binary options may prove tricky, but very profitable, especially in the long run.