Iron Condor adjustments

[SBrooks154 0]

What is the best way to adjust an iron condor! I'm hearing sell a call or put on the losing side but sometimes there's not enough premium left! I thought about doing a debit spread next to the side being comprimised! Then you are not promised it will blow through your limits! I've heard to buy out of the money positions not sure how that helps unless the price moves that far against you! What happens if you close out as soon as the price gets in the money! Do you only lose your profit instead of about 3 times your profit as is with most iron condors? I'm new to options so sorry if this makes no sense! Thanks!

[TrustyJules 2,915]

8 hours ago, SBrooks154 said:

What is the best way to adjust an iron condor! I'm hearing sell a call or put on the losing side but sometimes there's not enough premium left! I thought about doing a debit spread next to the side being comprimised! Then you are not promised it will blow through your limits! I've heard to buy out of the money positions not sure how that helps unless the price moves that far against you! What happens if you close out as soon as the price gets in the money! Do you only lose your profit instead of about 3 times your profit as is with most iron condors? I'm new to options so sorry if this makes no sense! Thanks!

I am not sure I understand why you'd want to sell an additional call or put on the side being challenged. Thats like doubling down with the risk of making things worse. The most typical corrective measure I heard of is to buy a call or put in a future expiry a few strikes out from the challenged side. The time to do this is when the underlying is reaching the short strike. The number of hedges you buy depends on your condor but a factor of 1:10 is advised for index options. So if you have a 10 unit Iron Condor you would buy one hedge when challenged. If the underlying rips through the short you will be covered for some of the loss by the growth in the long position. if it falls back you liquidate the long and chalk the cost up to insurance for having a safe trade.

[SBrooks154 0]

I'm sorry I meant sell a call or put on the opposite side! Thanks for the feedback I'll look into those stradegies!👍

[SBrooks154 0]

Also today I bought a 4 cent call just as a lottery ticket for tomorrow on a stock that I had an iron condor on! The order filled as a close on the call side which was the side I was worried about! I called in a panic that I had botched the iron condor and she told me that I was better off now because that challenged side was ok now and I had my lottery tickets in case the stock rallies tomorrow! If what she told me is true to me that's an excellent way to adjust an iron condor before it goes bad! Can you verify this for me so I know everything she told me was the truth! Sounds almost too good to be true! Thank you for any feedback!

[Dennis Wood 1]

16 hours ago, TrustyJules said:

I am not sure I understand why you'd want to sell an additional call or put on the side being challenged. Thats like doubling down with the risk of making things worse. The most typical corrective measure I heard of is to buy a call or put in a future expiry a few strikes out from the challenged side. The time to do this is when the underlying is reaching the short strike. The number of hedges you buy depends on your condor but a factor of 1:10 is advised for index options. So if you have a 10 unit Iron Condor you would buy one hedge when challenged. If the underlying rips through the short you will be covered for some of the loss by the growth in the long position. if it falls back you liquidate the long and chalk the cost up to insurance for having a safe trade.

What are your thoughts on financing that hedge on the challenged side by harvesting profits on the unchallenged side, maybe moving the short option down a strike or two?

[TrustyJules 2,915]

10 hours ago, SBrooks154 said:

Also today I bought a 4 cent call just as a lottery ticket for tomorrow on a stock that I had an iron condor on! The order filled as a close on the call side which was the side I was worried about! I called in a panic that I had botched the iron condor and she told me that I was better off now because that challenged side was ok now and I had my lottery tickets in case the stock rallies tomorrow! If what she told me is true to me that's an excellent way to adjust an iron condor before it goes bad! Can you verify this for me so I know everything she told me was the truth! Sounds almost too good to be true! Thank you for any feedback!

If you were able to close the short on the side you were worried about for 0.04$ then it cant have been very heavily challenged. As a rule closing shorts when they are worth pennies is a good idea. As for lottery tickets - remember options are probabilistic and tend to follow the rule of averages that you can either make many small gains very frequently and then have the occasional whopping loss or to have near total wipeouts every time except for the occasional whopping win. In the long run unless you have some edge this is a zero sum game.

What is certainly true is that nothing beats being long and right on direction with an option - the problem we all have: how do we know when to be long?

[TrustyJules 2,915]

4 hours ago, Dennis said:

What are your thoughts on financing that hedge on the challenged side by harvesting profits on the unchallenged side, maybe moving the short option down a strike or two?

I have seen this advertised by the guys from Tasty Trade for example - I think you reduce the space in which you can make profits and therefore the probability of a profitable trade. What you are buying is an insurance that your original thought of a range bound underlying is covered in case you were wrong, if you change your opinion about that range then the trade as a whole should be questioned. In those case I understand - but note I am far from expert - that its better to move the whole condor up or down as may be appropriate and to do so without delay. With a condor your worry is that one of your legs is going to get punched through so adjustments should reflect that.

 

Not sure if you are signed up to creating alpha? However if you do look at @SBatch Elephant trade which is a remarkable trade where he picks a range for the underlying (TLT in his case) and through many many tweaks throughout the trade lifetime moves that range if the market requires it basically selling potential final profit in exchange for security that we remain in the profit range. As subtle as that strategy is and as well as it works even then we cannot always avoid a loss due to an unexpectedly large and fast movement in SD of the underlying. There is no such thing as a free lunch.

[SBrooks154 0]

Yeah it wasn't tested as much in reality as I guess it was my expecations through prior moves! Yeah I just started following the guys from Tasty Trade I'll be sure to look at that example! Thanks for the input!