The crypto market is not as volatile as it was a few years back, but putting your money in crypto can be more or less a gamble. Among all the crypto derivatives we have, the crypto options strategy is the most straightforward to execute. Building upon this strategy, experts have found the Crypto Iron Condor Options Strategy to be the most risk-averse of them all.
What is the Iron Condor Options Strategy?
The Iron Condor is probably nothing new for anyone who knows about traditional investment strategies. It has been used for years to ensure that you end up with a profit after your trade is complete. In other words, it is a way to hedge your bets when you have invested in crypto trading.
The Iron Condor Strategy ensures that the traders make a profit in a range. Essentially it combines a put and a call vertical spread to give multiple trading options to the investors.
To understand the Iron Condor Strategy, you need to be aware of a Bull Market and a Bear Market. When securities rise, a Bull Market event occurs, and when securities decrease, a Bear Market event occurs.
A bull and bear spread is combined on a singular underlying asset in an Iron Condor options strategy. Therefore it consists of two call and two put options. One call and one put are long while the other two are short.
The call and put are also purchased at a different strike price in this strategy. But each derivative expires on the same date. The strategy is widely used to produce an overall credit. This essentially means that when the four options are combined, the investor makes a net profit since they received more money than they originally paid out.
It sounds complicated and takes a little bit of getting used to. However, the Iron Condor strategy is the best way to avoid the risk of generating a net loss while hedging your bets against the crypto market.
How Does it Work?
An Iron Condor Options Strategy works best when the underlying asset remains within the range defined by the different strike prices that the call and put options were bought at.
There are two types of Iron Condor Strategies: Long Iron Condor and Short Iron Condor. The Short Iron Condor is the more used credit strategy. This is because they are neutral strategies that offer limited profit that results from a low-volatile market. This means this strategy is ideal for profiting with crypto when the market is relatively stable.
To create a Short iron Condor strategy, you need to:
- Buy an out-of-money (OTM) put option that has a strike price below that of the coin.
- You must also sell an OTM put option which has a strike price above that of the coin.
- Then, sell an OTM call that has a strike price above that of the underlying coin
- And finally, buy an OTM call option which has a strike price that is above the cost of the underlying asset
The Iron Condor Strategy is considered neutral when the stock's current price is the same distance from the two different short options you have bought. By ensuring that you select a strike price which lies in a range for your choices, you could tilt the market into either a bullish or a bearish one in your favor. Maximum profit occurs when the asset remains between the strike prices of the short options.
The trader essentially wants the underlying asset's price to be between the inner strike prices at the expiration date. When this happens, they can allow the derivatives to expire on the decided date, which will give the trader the maximum profit from this strategy.
What are the Advantages of this Strategy?
There are quite a few advantages to trading using the Iron Condor Strategy. Some of these benefits include the following:
- Perhaps the most significant advantage of using the Iron Condor strategy is that you end up receiving a credit instead of paying a debit. You also get to keep more of your premium every day when the asset price remains between the spreads you have determined.
- The Iron Condor Options Strategy is best used for low-volatility environments. In the case of crypto, this is a relative term since the market is still volatile, but it has stabilized massively over the years. So even if the price of the coin changes daily, it is highly likely that it will remain between the range you have determined.
- The strategy can also help you receive a higher premium with the help of the double-sided credit spread.
- The Iron Condor strategy has no directional bias, making it completely neutral. You need to ensure that the coin price remains within the range you have determined.
- Another benefit of this strategy is risk evaluation. The Iron Condor strategy ensures that you are aware of the maximum loss you can incur to mitigate the risk accordingly.
Risks of Iron Condor Strategy
Like any other trading strategy, even the Iron Condor has a few disadvantages:
- The trading fees required are pretty high. The fewer contracts you have, the higher the fee will be. This fee is money you could get back if you profit, though.
- Understanding the process and maneuvering through it efficiently is also not easy. It takes a fair bit of experience to be well-versed with the strategy.
- Since the risk of losing a significant amount of money is minimal, the profit you can make is also not massive.
The Iron Condor Options Strategy is one of the safer strategies if you want to begin crypto trading. It is a little bit complex and could require some experience before you do well, but it is one of the more reliable trading strategies out there. If you have considered getting into the crypto trading business, this could be the ideal way to go about it.