Iron Butterfly And Condor Slices by Tony Saliba and Joe Corona
This option strategy may be effective when the market is
transitioning from trending to trendless.
Markets, market sectors, and individual stocks can cycle between states of price balance and imbalance. An underlying market, market sector, or stock is in a state of price balance when there is equilibrium between buyers, sellers, and the underlying market moves in a trendless or sideways fashion. A market is in a state of price imbalance when buyers overwhelm sellers and prices trend higher, or sellers overwhelm buyers and prices trend lower. An imbalanced (trending) market will eventually reach a price where sufficient buying or selling is attracted to correct the imbalance and the market will begin to move in a trendless fashion until the next event pushes it into imbalance, and the process starts over.
Capturing and profiting from the transition from a trending
market to a trendless market is a tricky business. Expressions such as “the trend is your friend,” “never try to pick the top,” and “never catch a falling knife” can be found in most trading literature (and overheard in the bars near the exchanges). However, these common expressions tend to apply more to trading the underlying stocks or futures than options on those stocks or futures.