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Adjusting Iron Condors: General Concepts

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When it comes to trading, beginners are especially overconfident.  I have no clue as to why that is, but they often trade before becoming educated, trade too much size, seldom manage risk, and far too often – blow up their accounts, and quickly become ex-traders.

At some point – early in your career as a trader – the importance of managing and controlling risk must be recognized or there is a significant chance you will not survive as a trader.  Today's post is not to argue that point.  Assuming you are convinced (or very soon will be) that it's true, let's discuss how to manage risk when trading one specific option strategy:

If you are unfamiliar with iron condors, here is a very basic description.


  • You own an iron condor on a broad based index (INDX)
  • INDX has rallied (fallen) since the position was opened
  • INDX is trading at the edge of your discomfort level

    • You believe this position can be salvaged and there is no reason to exit
    • You believe now is a good time to adjust the position


Making adjustments

There is no single 'best' strategy to use when adjusting positions.  The primary goal is to reduce risk. You are adjusting because risk has reached an unacceptable level.  At this point there are basically two choices:

  • Reduce size by closing some or all of the position
  • Reduce risk by making a new trade – bur ONLY when the adjusted position is worth owning

The secondary goal is to own a position that has a better chance to earn a profit – from this day forward.  I am not talking about recovering any losses.  Losses are in the past and should play no role in choosing your current trade (or investment).

Earning money in the future is all that counts.  Whether it turns out to be enough to offset earlier losses is not important.  Your goal as a trader should (obviously this is my opinion) be to make money today, tomorrow and for as long as possible.  You have no control over what has already happened.

My goal when choosing an adjustment is to make the position something with a good probability of earning a profit.  A satisfactory reward potential, along with an appropriate level of risk are necessary considerations.  If I cannot meet those, I'll exit instead of adjusting. 

From my perspective, I suggest not owning a position that is already outside your comfort zone when it is opened.  It's common for traders to do just that when making an adjustment.  Why?  Because the adjustment is made with the objective of getting back to even on the trade, rather than focusing on making money today and tomorrow.  Both ideas are similar in that the goal is to earn money, but the 'getting back to even' mindset focuses on earning a specific amount – and that may easily result in your owning a position with too much risk.

Below are some of the adjustment possibilities for an iron condor gone awry.  Each is appropriate under the riight conditions.  I suggest that you consider the list and find one or two that suit your needs.  There is no space to provide detailed descriptions of each strategy, nor is this an attempt to provide a complete list.  It's a group of ideas worth considering.

Basic Adjustment types

  • Exit or reduce size
  • Buy extra options for protection.  These options must be less far out of the money than the options being protected.  If your condor is short calls with a strike price of 900, the adjustment is to buy calls with an 890 (or lower) strike price. 

    • Maintain those options unhedged for potentially unlimited gains.  This is often too costly for most traders to consider
    • Hedge the option purchase to reduce cost

      • Convert it into a call (or put) debit spread

        • Sell lower priced option with same expiration date.  For example, buy the 880/890 or 890/900 call spread to adjust a position that is short the 900 calls.  This trade offers good ban for the buck.  Protection is limited, but the cost should be acceptable (unless you waited far too long to adjust)

      • Convert it into a kite spread

        • Sell a few farther OTM call (or put) spreads
        • Example: Buy one 890 call and sell three or four 920/930 call spreads (same expiration date)

      • Convert it into a long strangle by buying puts (or calls).  This is expensive

      • Sell more premium.  This adds to risk and is ONLY appropriate when the current risk level of your account is well below your maximum level

        • Sell OTM put spreads when delta short (INDX rallied)
        • Sell OTM call spreads when delta long (INDX has declined)

        • AVOID selling spreads for small premium.  This is not a risk free trade, and if you are going to take this specific risk, be certain the reward is worthwhile.  It's easy to believe (incorrecty) that a low delta spread is 'safe' to sell.

    • Cover troubled spread, roll farther OTM, sell extra spreads.  Example buy to exit your short 900/910 call spreads and sell a larger quantity of 920/930 spreads (expiration month may be the same or different)

        This trade often usually made for a cash credit

        Warning: The position looks better right now, but those extra short spreads translate into extar risk.  Be certain your portfolio does not become too risky to hold

    • Buy OTM calendar spreads.  These offer limited protection and may lose money when the underlying moves too far.  Choose a strike price that offers profits when you need them the most – and that is near the strike of your current short options


The iron condor strategy is often used by traders who think of it as an income source.  It is not free money, nor it is guaranteed to produce income every month.   Risk must be managed well.  If you take good care of your option positions and limit risk at all times, the chances are good that they will take care of you.


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