Adjusting an Iron Condor

Discussion in 'Options' started by jwcapital, Mar 10, 2009.

  1. I trade iron condors on the ES (S&P emini futures). I never hold these to expiration--in order to avoid a gamma blow-up. Interestingly, I had a first for the month of March. I placed my IC's the week of February expiration. Within a week and a half, all of the bear call spreads were worth .20 to .25, down from 2.5. So, I exited all of them, basically leaving only bull put spreads. So, for the first time, as the market moved down, I entered all new bear call spreads to replace the ones I exited. Of course, the new strikes were lower, but basically had the same value as the originals. Anyone ever try this adjustment? Typically, I've just exited the bear call (bull put) spreads when they lose about 80% of their premium and let the bull put (bear call) spreads ride.

  2. I always cover one side of the IC when it gets cheap enough.

    Sometimes I sell new spreads to bring in more cash and part of the time I just hold the remaining side.

    I prefer not to sell as many as I sold the first time. If I cover 25 call spreads, I may sell only 20 new spreads.

    It's very tempting to bring in more cash, but the problem is that any market reversal may result in an immediate attack on the new spreads. Because I want to remain significantly far OTM, I never re-sell front-month spreads (premium far too low).

    I recently covered some May and Jun call spreads in my RUT iron condors. I replaced those with new calls.

    When I covered the Mar and Apr calls earlier, I did not replace them.

    It's a comfort zone decision.

  3. Grinder


    This has worked for me in the past, especially when the underlying keeps moving away from my call spreads, the only problem I have with buying back the call spreads & then opening new ones at lower strikes is that you are left with a bunch of put spreads getting close to the money. Thus much heavier risk on one side. Might have to roll down some of those put spreads, as Mark likes to say... it's a comfort zone thing. :)
  4. I will disclose my thoughts on this discussion Saturday. I do like the discussion thus far, but I will know more come Saturday.
  5. Not only can you roll the puts down but you can also close some of them to reduce some of the downside risk.
  6. I would have kept the Calls and watched the Puts, which at that point were probably pushing the entire IC into a money losing situation. If the short Put reaches ITM then you have to decide to bail out of the Puts to cut your loss, or hope for a bounce.

  7. That's what most people do and it's very short-sighted, in my opinion.

    Why hold out for the last few nickels on a trade? There's far too little to gain and those options can get in your way at a later date.

  8. Mark the OP closer, I think he left out some important details.

    For the Calls to have fallen so much over a 1 1/2 week period it means that those Puts have gone up a lot and are close to ITM or even ITM. That means the position is in the RED - or close to it - at this point and the problem is the PUTS not the CALLS. So it's either close entire IC or hang on for a possible further loss or gain.

  9. rluser


    I am in a similar position and have been considering this. My contract is MNX (apr) and I am looking at the call side. There is still quite a lot extrinsic value in the put side so it is tempting to move the calls up a few points for a small loss. No doubt tomorrow could force a decision on me.
  10. Given the original IC--my bull spreads were pretty deep OTM when the bear spreads virtually became worthless. As volatility increases, the calls quickly lose value, even with relatively small moves. I subscribe to the "mean reversion theory," where a bounce upward or downward is highly expected. By exiting the bear spreads for .20-.25, I increase my profit on this side of the IC. If I leave the bear spreads alone, I wouldn't be able to exit them with as much profit. In other words, I am looking to exit the profitable side ASAP---and having balls of steel, I monitor the losing side. Remember, you are booking the maximum profit for that spread by following my rules. Yes, the losing side may cause the portfolio value to decrease, but you still have that profit as a back stop. As I will discuss Saturday, the one day rebound on Tuesday pushed the losing bull spreads into incredible profit position. Even at the low, I was still OTM, but patient.
    #10     Mar 12, 2009