2 spreads with a common strike

[Guest Dee]

Hello,

I have been options trading on my own for several months. I have both a live and a simulated account with Scottrade Pro. Basically, I do my "what if's" on the simulated account. I have a live spread that expires in the next few days with a very wide spread. There is definitely room to go in with a second iron condor. I tend to place my "live" strikes in the very safe zone, which decreases my profits.  In my simulated account I entered my live spread as well as a more narrowed approach, as test. . This included 1 common strike. I've never really looked at iron condors as anything but a package. It threw me off a little when the two spreads cancelled out one of the legs.

original iron condor: -2480, +2485, -2420, +2415

narrowed approach: -2475, +2480, -2445, +2440

With both in place, I have both sold and bought 2480, which leaves that strike position at 0. I realize that if I needed an out, reversing the action closes it. That wasn't my intention in this case. If I had done this live, where exactly would I stand ? Is the sold 2475 strike no longer covered?

 

 

[Dr. Z. 42]

You effectively have ended up with a single 10 wide -2475, +2485 call spread. In theory you still have your 2 iron condors of course. But your trading software will probably no longer recognize them as such. Not the end of the world.

In practice you will want to avoid doing buying and selling the same contract because it costs you unnecessary commissions and bid/ask spreads.

If your account is under $25k it will also count as a "day-trade" (you're not supposed to do those with less than $25k) 

 

[Dr. Z. 42]

As to what you were trying to do: If you have an existing IC like  -2480, +2485, -2420, +2415 and want to collect more premium, you can just roll the short strikes, so you would typically buy back the 2480 and sell the 2475 (as a single order) and then buy back the 2420 and sell the 2425 (as another single order). Or you can sell the 2430 or 2435 or so, but this would make the put side wider and requires additional margin/BPR compared to the call side. At the end of that exercise you would still have a single IC, but it will have different short strikes than what you started with.