Would appreciate an article about adjusting an iron condor related to the greeks (delta) or about Sheridan´s methods?.
As you know there are many possible methods you can use to adjust an iron condor position. The ultimate purpose of any method is to reduce, or eliminate, risk. By exiting the whole position, risk is eliminated, and that's the most extreme, and effective, adjustment possible. But when we are ready to adjust a position, it's too soon to think about exiting, and we look for risk-reducing trades that give us a good chance to earn a profit going forward.
Regarding Dan Sheridan, his methods can be found elsewhere (Click on 'Dan Sheridan archives' in left column, after you sign in). But one of his ideas is to open a position 4 – 5 weeks prior to expiration and to exit, after holding just over two weeks. I approve of this general approach: Make a decent profit, then eliminate all residual risk by not having a position as expiration approaches.
I use a longer time span (enter 13 weeks prior to expiration, and exit 8 to 9 weeks later), but the idea is the same: collect a profit (if the market co-operates) then eliminate risk by closing the trade. The reason for the early exit is to avoid holding when negative gamma increases and becomes more of a threat. And yes, I do understand that it's difficult to pull the trigger and exit a trade – as time decay is accelerating. Thus, I want traders to understand that this is my decision for my comfort zone, I'm not recommending that anyone else trade that way.
Adjusting with Greeks
It's always a good idea to know the risk factors associated with your iron condor (or any) position, and the Greeks provide a quick and easy method for tracking that risk. Every morning I enter the portfolio delta, gamma, theta, and vega into my daily diary. Doing that prevents me from closing my eyes to those numbers. There's nothing like writing something on paper (or in a computerized document) to help you be aware of your situation.
Let's assume you open a 10-lot iron condor position, expiring in 45 days, and that you sell options with a delta of 12 (that's just a random choice for the purposes of discussion). You buy the wings, choosing options that are 10 points further out of the money. Note: these options are chosen on 'distance' symmetry,' not delta symmetry. Thus, the original iron condor may not be delta neutral.
[If you prefer delta neutral, then choose different options to sell. This is not too important for this discussion, and although I prefer to leave no questions unanswered, this is not the place for more details on this point.]
As time passes and the underlying stock or index moves higher or lower, the Greeks change. At some point, the position reaches an uncomfortable level and it becomes advisable to make a stage I adjustment. You cannot use a set formula to determine when that point is reached. Instead, each investor has his/her own comfort zone that helps choose that point for you. I wish I could make a recommendation on how to choose that point, but cannot do so with any assurance that it represents anything but a random number.
It's up to you to find the right time for making an adjustment. For example, if you own a position with 200 negative delta and 10 negative gamma, you can assume (IV holding constant) that a 5-point move in the underlying index will cost more than $1,100 as your negative delta moves from 200 to more than 250. Can you tolerate that loss? Are you willing to take that chance. If the reply is yes, you have not yet reached Stage I. If that potential loss is too high for you, then do something. Perhaps cover 50 to 100 delta plus at least 2 gamma. You can do that by buying some naked long options or by reducing the size of your spread. [This paragraph updated 2 hours after original posting.]
The one piece of advice I offer is this: Don't let yourself get hurt. If you have a reasonable fear that the position can lose more than you are willing to lose on a single position, then do something to reduce that risk.
[Full disclosure: I believe this advice to be wise, intelligent, and reasonable. But I do not follow it 100% of the time, and take more risk than I should. I'm much more disciplined that I was earlier in my career, but I truly wish I could blindly follow my own heart-felt advice.]