Adjusting iron condors: Choosing among the alternatives


Making the "right" adjustment, at the "right" time is, by far, the most difficult part of trading iron condors, as far as I am concerned. In my real trading, the only type of adjustment I dare try is to close part of (or all) the position or roll over. All other types of adjustments seem too difficult to manage for me.

Most probably I am asking too much but , if not, and if other visitors of your blog also find it helpful, may I suggest that for a period of one or two weeks, you set up a simulation game where every day you give us a specific position (IC) and the necessary data (price of underlying, volatility, the Greeks etc) and we are asked to make a decision whether we need to adjust or not and if yes what strategy we choose, and then, the next day you give us your own proposal. I fully understand that everybody has his own comfort zone but it would be a great opportunity to see in practice how all the different adjustment strategies are used and why.

If this is not realistic, is it possible to publish in "Expiring Monthly" a new "Follow that trade" like you did last March?

Thank You



It's not realistic because of the huge amount of time required.

However, what you ask is not nearly as beneficial as you may believe it is.  Asking for the greeks?  Isn't that easy enough to do yourself?  However, that's not the point.

As a rookie, you cannot always expect to read about something and immediately put it to use.  Sure, that happens part of the time, and one example is becoming aware of the risk associated with trading too much position size.

However, not everything is so easy.   Adjusting iron condors is complex.  There is much to understand.  You cannot expect to examine a few example and then know what to do.


Your job

You have two main tasks: understand the adjustment method and then practice.

Understand:  Think about the reason for making an adjustment of the type under consideration.  Decide if it makes sense to you.  Try to guage the amount of risk reduction to be gained vs. the cost.  Compare with alternatives.  Decide if the whole deal fits within your comfort zone.  When you find something suitable, it's time to go to work.

Practice:  Use a paper trading account.  There's more detail on this idea below.


You know that I have no idea whether you should adjust when the underlying is 5% OTM, 3%, 1% or any other number.  How can I know your tolerance for risk or your investment objectives?  Or just how much you understand and how much of a beginner you are.  Each of these items, and much more must be considered when adjusting an iron condor,  Remember that there is no right answer.  There is merely something that is good for you, and hopefully you choose something very good, or even 'best' for you.

Then if you decide to adjust, I don't know if you should exit, reduce by 10 to 30%, buy a debit spread, buy a kite spread, roll, etc.  I'll go further:  If I were to tell you what to do, and not teach you how do make that decision for yourself, then I would not be fulfilling my goals. No one knows what you should do. 

I have no idea what is right for anyone but myself.  Even then I may have a difficult time making a decision.


My job.

I cannot show you what to do.  What I can do is offer a list of suggested strategies and try to explain why each may be a good idea, depending on conditions.  I can be certain you recognize the risk involved.  That's all I can do.

If you cannot make a good choice from the information – and I understand that as a rookie it's far from easy – then you must practice.  You suggested that I undertake a specific task.  Instead, you do it.

Each day for a week, open a new iron condor in a paper-trading account.  Each new IC should be require an immediate adjustment. Because you don't know 'when' to adjust, try this.  Open the trade based on this assumption:  It was a good, netutral trade at one time,  but now the calls (or puts) are 2% OTM. It does  not matter how much premium you collected.  It does not matter how long ago you made the trade.  Today the position is uncomfortable for you to hold.  Thus, an adjustment is in order.

Pick one adjustment method.  If you don't know which to choose, buy some credit spreads.  Guess how many.  Guess which stirkes – based on what I have previously suggested.  Try to be comfortable with the cost.

Make an adjustment.  Follow the trade.  Determine how well you like the adjustment method being tested.  They try again with another straegy.

Follow the trades.  Record your thoughts and collect data.  Gain experience.  That will be far more useful to you than reading my opinion on specific trades.  My objective is to teach you to think for yourself.  I know that as a beginner, you want to learn everything NOW,  That is not going to happen.  You must have some patience and learn at your own speed.  Here, practice trades offers the best learning experience.

Over several months you will collect much data and have many entries in your trade journal.  Some trades will be comfortable for you, some will not.  Be certain to record which adjustment types fall into which category. 

Among the comfortable trades, try to decide which seems to work best for you.  This is not to be determined by which makes (or save) the most money, but that is one consideration. 

Use that startegy as your primary adjustment method, but at the same time, continue the paper trading to gain more experience with other iron condor adjustment methods.  It's an ongoing proposition.

You may want to view my Oct 12, 2010 one hour webinar at TradeKing on this iron condor adjustments.

A lengthy example may be educational, but it's not a substitute for doing the work yourself.  I'm here to help or offer guidance.  But this request is more than I can handle


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11 Responses to Adjusting iron condors: Choosing among the alternatives

  1. Dimitris 10/29/2010 at 5:36 AM #

    Thank you for the detailed answer. Wise advice as always!
    Your idea, using the paper trading account, is great. In addition, my broker (TOS) has an excellent tool (thinkBack) which, I think, can be very useful for this purpose.
    Again, thank you very much for your support.

  2. Jim 10/29/2010 at 9:43 AM #

    Mark, Im still bullish on AAPL and not quite sure which calls to sell turning them to spreads? I would appreciate the chioces available for me to continue working this trade to make it profitable.
    I still have cash to work with if Rolling up and out is a suggestion. Thanks for your help,

  3. Jason 10/29/2010 at 3:19 PM #

    Whats your thoughts/experience with stocks pinning to strikes at expiration? Very strange to me how these weekly options are seeming to get pinned all the way down to last ticks of the Friday expire.
    AAPL pinned 300, NFLX pinned 170, BIDU pinned 110. Almost as if the mm’s are manipulating somehow or maybe options market has an affect on the price as people adjust for delt neutral??
    It plays almost predictable at times and Im wondering if I should be playing or at least factoring this event somehow??

  4. Mark Wolfinger 10/31/2010 at 11:56 AM #

    Reading this question, I have no idea what position you own and can offer no suggestions.
    What is the position?

  5. Mark Wolfinger 10/31/2010 at 12:07 PM #

    In my opinion, pinning is a myth. The best I will concede is that stocks tend to make a minor (and I mean minor) move towards the strike, based on market maker hedging during the day.
    Market makers cannot manipulate the stock price, unless they act together. How could that possibility even be considered, let alone arranged? And if they so colluded, it would require that big players to sit by and allow it to happen. If Goldman decides to buy 20,000,000 shares at the end of the day, the MM collusion goes bye bye.
    You listed three stock that pinned to the strike. Why didn’t you list the more than 2,000 stocks that DID NOT pin to the strike?
    Randomness requires that 1% of stocks close at an even digit. Some of those are strikes, others aren’t. To give a list of stock that pinned – after the fact – is worthless. Give me the list before it happens and then I will concede that there is some validity to your argument.
    If you truly believe this is predictable, you are encouraged (by me) to sell straddles. All you have to do is pick the right stocks and the right strike prices.
    The only way I would play this concept is to NOT own options into expiration. But, that’s easy for me to say. I also believe traders should NOT be short options going into expiration.
    Jeff Augen wrote a whole book on profiting at expiration – and he obviously has opinions to share on this topic.

  6. Jason 10/31/2010 at 1:15 PM #

    Augen discusses “pinning effects” of certain stocks such as google at expiration. Im not saying I tuly believe pinning to be an exact science but rather a factor to be considered when trading close to expiration. Not all 2,000 stocks have weekly options or heavily traded. The 3 I mentioned just seem to be a bit more popular in the trading arenas and have a steady stream of weekly option action.
    Whether fact, myth, reality, or conspiracy it just seems to warrant some consideration imo.

  7. Mark Wolfinger 10/31/2010 at 1:40 PM #

    I agree with your assessment.
    One thing you can do is track the numbers, collect data and decide if it’s worth making a play.
    In a situation such as this, I take the lazy approach. I assume that if there is money to be made, the quants are way ahead of me and that they do not leave much on the table.
    I recognize that this may present a lucrative opportunity – especially while weeklys on individual stocks is rather new – but I don’t have the time to devote to a study
    It is an interesting research area, and perhaps you can make some interesting discoveries. And if you find something promising, you may be able to jump right into the dailies and do even better.
    Hope you can get some good from your idea.

  8. Jim 10/31/2010 at 2:43 PM #

    Here are my positions:
    AAPL. Qty 3 NOV 320 CALL . Qty 2 DEC 320 CALL . Qty 1 DEC 290 CALL.
    Thanks, Jim

  9. Mark Wolfinger 10/31/2010 at 3:15 PM #

    I had no idea that you owned individual calls and are looking for suggestions. That’s not the type of advice I give. I don’t know anything about you – including how aggressive you are, what your investing objectives are, how much options experience you have. Nor do I know what you mean when you state you are still bullish on AAPL.
    Are you bullish this week, this month, or over the next 2 years? All that makes a huge difference in the type of investments you want to own. I assume you are bullish right now because you own Nov and Dec calls. I also assume that you are losing money on the trades and are desperate to get back to even. But that’s just a guess.
    The first item for you to understand is that you may sell any call option that exits. Your choices are numerous. On a practical level, you have far fewer realistic choices – when you state that you are still bullish.
    a) Nov 320 call
    One of the quickest ways to go broke trading options is to make a habit of buying out of the money call options – hoping for a gigantic advance.
    Another sure-fire method or going broke is to buy options and never sell them.
    When you buy calls, please make a plan. Have a profit objective. If that objective is met – don’t get greedy.
    AAPL Nov 320 is not a call I would ever want to own. Sure there is a chance to make some BIG money, but it’s strictly against the odds.
    The best you can do is to sell 3 Nov 330 calls, but because the premium is so low, that’s not very attractive. It seems to me that you must choose between holding these and selling them.
    But do not hold forever. At some point you will want to sell.
    b) Dec 320 call
    Once again OTM calls are not the path to riches, except for the select few who know when a market surge is coming.
    If bullish, I’d sell 2 Dec 340 calls to get back some premium. You may prefer the 350s or even the 360s.
    c) Dec 290 call.
    I don’t know when you bought this call. But recently it was almost 30 points in the money. I certainly hope that you did not own this call at that time. There has to be some price at which you plan to sell options that move well into the money. the third guaranteed way to go broke is to be greedy and never consider any profit to be large enough.
    If bullish, hold and then choose a price and time to sell. If you plan to make a lot of money in a single trade, you will eventually do so. If you don’t go broke in the process. And if you don’t go broke, that single win will not be big enough to cover the losses – for the vast majority.
    Buying options is a fools’ game – unless YOU HAVE A PROVEN (REPEAT PROVEN) TRACK RECORD of being able to predict when stocks are going up or down.
    One alternative: Keep the Dec 290 call. As a hedge, consider selling your two Dec 320 calls. If you prefer to keep those calls then sell one Nov 300 or Nov 310 call – if you want to bet the price increase that you expect is not coming too soon.
    Another choice is to sell one Dec 310 or 330 call.
    I’m very opposed to beginners buying call or put options. It’s very difficult to make any money. However, it’s your money and I hope you find my suggestions useful.

  10. Amen 11/05/2010 at 9:12 AM #

    Hi Mark,
    The link you provided doesn’t seem to be working.

  11. Mark Wolfinger 11/05/2010 at 10:26 AM #

    Sorry. Try the above link instead. Scroll down the page to find the appropriate webinar.
    Thanks for the heads-up