Too Many Adjustments

Continuing the discussion:


I don't feel comfortable getting too close
to the money with iron condors. I am happy going just inside one standard deviation.

Yesterday I rolled a 3-point wide SPY IC from Oct to Nov to get more "centered"
and collected between $0.98 and $1.20 on 10 lots.  The new position is just inside one
standard deviation.

Of course it's no longer centered after another
rally today.  By the way, do you think this rally will be over soon?

plan is to collect .3 in 4 weeks and then roll to Dec to get "centered"

I also have a 1-lot of an OCT NDX IC, opened with 50- point spreads (low 1650
high 2000) a little bit outside one standard deviation, and collected $7.50.

Again the plan is hold 4 weeks and roll to get centered.

One more question: when would you suggest adjusting both my open
positions in case of a big movement?



You raise some important points, worthy of discussion.

1) 'Too close to the money' is not a well-defined term because it is 100% relative and strictly a personal comfort zone decision.  It's neither right nor wrong to refuse to trade close-to-the-money iron condors. 

2) I promise that you don't want to know my opinion on where the stock market is headed next.  My prognostication record is dismal.  Yet, because you ask, I don't understand why the DOW is not near 5,000 instead of 10,000.

3) I think you roll far too frequently

This is important.  Why do you 'get centered' every expiration? 

Do you believe that reduces risk?

Do you believe this is an efficient method of trading?

Do you believe it's necessary to get neutral frequently?

Why do you do this.  There must be an answer.  Did someone suggest doing that?

Unless you are at, or approaching, the limit of your comfort zone, why are you exiting your current position? 

4) Here is a good idea that will make your trading far more effective: Cut your trade size in half. Use half your capital for a Nov position and the other half for Dec.

This is my recommendation.  Do not accept it if it violates your comfort zone.  But:

There is no need to 'get centered.'  It may be better to move just the calls or just the puts.   It may be better to reduce size.

The idea is to get centered when YOU are not satisfied with the current position.  That means too much risk or too many delta out of line etc.  It does not mean taking a perfectly good position and rolling it out one month just to get centered.

Your methods include: Too much trading.  Too many commissions.  Too many adjustments. Far yoo much cash going to your broker.

5) Why think of it as rolling?  Here's what I suggest.  Use your Nov position.   Adjust, exit, roll, etc ONLY WHEN IT'S THE RIGHT THING TO DO.  That means when YOU want to take action.  Do not roll just to get centered.  It does cost real commission dollars to get centered.

Open a Dec position when you are ready to do so.  Each of these positions is half your current size.  You own these Nov and Dec positions simultaneously.  Now, trade them separately.  When ready, close Nov.  Then sell January when ready.  Do not roll to Jan.  Just close Nov when ready.  After you do that, open Jan when those options become available for trading.

Manage Dec options the same way.  Trade the spread on its own.  Close when ready and then open a Feb position.  There is no need to roll. 

6) NDX trade

I have no suggestions for when YOU should adjust your current positions.  I don't know your comfort zone.  Nor do I know how far OTM you allow your short options to be before rolling. 

I don't believe in rolling.  I think it's a poor strategy that people adopt because of insufficient information. It should be a two-step process.  If you want to exit the current position, then exit.  If you want to open a new position, then open it.  The problem with rolling is that traders feel obligated to exit AND make a new trade at the same time.  Often, that new trade is ill-advised, too risky, or chosen for the wrong reasons (to collect cash instead of paying a debit).

Rolling should be two separate decisions.  It's okay to roll in a single trade, but ONLY when you want to exit the old and open the specific new trade.  In your situation, I don't understand why you are exiting the current trade.

A 'big move' is another term that is not well-defined.  Thus, I have no idea what it means to you and have nothing to suggest about whether you should make adjustments to your positions if that 'big' move occurs.  The same rules apply.  Make a trade plan to think ahead and consider at what price point you would become uncomfortable.  Then update that plan as time passes. If you don't recognize discomfort when it arrives, then go with the trade plan.

7) My recent record

I made zero adjustments out of necessity in recent times.  I bought in all my RUT Sep 10-point call spreads when they declined 15 and 20 cents.  And over the past few days, did the same with the put spreads.  I have no Sep positions and in fact, have already bought in a good portion of my Oct call spreads at 20 cents – on the recent decline.  I'm hoping to collect a few Oct put spreads on this rally, but nothing yet.

I never felt the need to adjust.  The moves never brought my shorts to a point where I considered the position to be risky.  Obviously you and I have different comfort zones, but if I rolled to get centered as you do, I'd have rolled many times.  I don't believe that's a good reason for making trades.

In my opinion, do not adjust when there is a big move.  Adjust when your position is not what you want it to be.  That's when you feel that your short options are too close to being ATM.  that may come after a big move or a small move.  And it's not an all or none decisions.  As you know, you can adjust in stages.

8) One more item I do not understand.  You collected over $1 for the November spread and your target is to earn 30 cents over the next four weeks?  Then you plan to exit?  Question:  Is the target profit of 30 cents worth the risk?  That's not very much profit. [Yes, it is a 10% gain on margin, but it's less than 1/3 of the premium collected]


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