Iron Condor is a neutral options strategy that profits from a lack of stock price movements.
Do you know how to adjust a losing Iron Condor when the stock price fluctuates beyond our expectations?
Today SlashTraders will show you our favourite Iron Condor options adjustment strategies that can increase our chances of profit and reduce our maximum loss.
What Is Iron Condor?
An Iron Condor is an options strategy that combines a Bull Put Vertical Spread and a Bear Call Vertical Spread. The trade is profitable when the stock price doesn't vary very much.
The Bull Put Spread defines the lower boundary of the stock price. The Bear Call Spread defines the upper bound of the price movement.
As long as the stock price stays between the strike prices of the short Put and short Call, the four legs of Iron Condor will expire worthless, resulting in profit for the options seller.
We can see a 0.20 delta PLTR Iron Condor that expires next month has a 63% probability of profit, and has the highest return on capital of around 32%.
Roll Up Put Vertical Spread After the Stock Price Goes Up
If the stock price goes up before the Iron Condor expires, we can roll up the profitable Put Spread to pocket the profit.
In the PLTR example, when the Palantir stock price goes up, our Put Spread becomes profitable due to a lower delta. While the Call Spread on the other side loses because of an increase in delta.
We can roll up the Put Spread to collect some profit first:
- Buy to close the Put Spread.
- Sell to open another Put Spread that expires at the same time at a higher strike price.
After rolling up, we create an Iron Condor with a smaller profitable width, allowing us to continue to benefit from theta decay.
Roll Forward Call Vertical Spread Just Before Expiration
If the stock price remains high at less than 14 days to expiration, we can turn the Iron Condor into a Call Spread and consider rolling it to a later date.
So we are left with a Call Spread. If we have a bearish outlook for PLTR, that the stock price will drop below the Call strike, we can roll the Call Spread forward to a later expiration:
- Buy to close the current Call Spread.
- Sell to open a Call Spread that expires later.
It would result in a Call Spread with a longer expiration, letting us compensate the loss with the time value of the new trade. So we can wait for PLTR's stock price to fall back within our expectations and profit from the decay of time value.
Roll Down Call Vertical Spread After the Stock Price Goes Down
If the stock price goes down before the Iron Condor expires, we can roll down the profitable Call Spread to pocket the profit.
If the Palantir stock price goes down, our Call Spread becomes profitable due to a lower delta. While the Put Spread on the other side loses because of an increase in delta.
We can roll down the Call Spread to collect our profit:
- Buy to close the Call Spread.
- Sell to open another Call Spread that expires at the same time at a lower strike price.
After rolling down, we have an Iron Condor with a smaller profitable width, allowing us to continue to benefit from theta decay.
Roll Forward Put Vertical Spread Just Before Expiration
If the stock price remains low at less than 14 days to expiration, we can turn the Iron Condor into a Put Spread and consider rolling it to a later date.
- Buy to close the current Put Spread.
- Sell to open a Put Spread that expires later.
It would result in a Put Spread with a longer expiration, letting us offset the loss with the time value of the new trade. So we can wait for PLTR's stock price to bounce back and profit from the decay of time value.
Best Iron Condor Settings in the Options Scanner
We can find high probability and high return neutral option trades with the Options Scanner. Let's use the filters to find the best Iron Condor entry points.
- We want to choose opportunities with greater than 30 DTE to get the safest theta decay and less gamma.
- We can filter IV Perc >67% to find opportunities that have a high chance of contracting IV and vega in our favour.
- By choosing Market Cap ($B) larger than 10 billion, we avoid choosing stocks that can get manipulated and explode like AMC.
- A good idea is to eliminate stocks with depressed price movement, or in Squeeze, because IV will expand soon after.
- We should also avoid underlying that have an upcoming Earnings Date in 30 days to reduce the chance of large fluctuations.
- Finally, we can sort the Iron Condor ROC by descending order to get a shortlist of highest return Iron Condors.
Based on the Options Scanner filter settings, here is the list of the safest and highest return 0.20 delta Iron Condors at the moment.
So we have a shortlist of the safest and high return Iron Condor opportunities, we can fine-tune the selection to get the best entry points.
We can use the Options Volume in the watchlist to find more liquid options opportunities. In the list of high return Iron Condors, MRNA has greater Options Volume than RIO, so we get better fills when entering and exiting trades. Let's trade an Iron Condor for MRNA.
When we sell an MRNA Iron Condor that expires in 54 days, if the MRNA stock price does not exceed the short Put and short Call strike prices, we can make 58% maximum profit when the 4 options expire worthless.
Now you know how to find high probability and high return Iron Condors with the Options Scanner, you don't have to panic when an Iron Condor trade goes bad. We can roll up or roll down the profitable legs first. When it is close to expiration, we can turn the Iron Condor into a Vertical Spread and wait for the stock price to revert to our expectations.