adjust iron condor

How to Adjust Iron Condor When the Trade Goes Bad

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.

pltr iron condor
An Iron Condor is a neutral options strategy that combines a Bull Put Spread and a Bear Call Spread.

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.

put spread profit call spread loss
Put Spread becomes profitable due to a lower delta. Call Spread loses because of an increase in delta.

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.
roll up put spread
Roll up the Put Spread to collect some profit, then sell to open another Put Spread 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.

iron condor after roll up
Roll up to create a narrower Iron Condor.

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.

put spread profit at 11 dte
The Put Spread is already very profitable by the time the options are near expiration. We can buy to close the Put Spread to collect our profits.

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.
roll forward bear call spread
Roll forward the Call Spread.

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.

bear call spread expires next month
Roll the expiration of Call Spread to wait for the stock price to fall.
slashtraders trial banner

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.

call spread profit put spread loss
Call Spread becomes profitable due to a lower delta. Put Spread 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.
roll down call spread
Roll down the Call Spread to collect our profit, and sell to open another Call Spread 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.

iron condor after roll down
Roll down to create a narrower Iron Condor.

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.

call spread profit at 11 dte
The Call Spread is already very profitable by the time the options are near expiration. We can buy to close the Call Spread to collect our profits.

Then we are left with a Put Spread. If we remain bullish about PLTR, that the stock price will increase past the Put strike, we can roll the Put Spread forward to a later expiration:

  • Buy to close the current Put Spread.
  • Sell to open a Put Spread that expires later.
roll forward bull put spread
Roll forward the Put Spread.

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.

bull put spread expires next month
Roll the expiration of Put Spread to wait for the stock price to rise.

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.

options scanner iron condor filters
Use Options Scanner 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.
high return 0.20 delta iron condors
The safest, most profitable 0.20 delta Iron Condors to trade right now.

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.

mrna iron condor
MRNA is currently the safest, most profitable Iron Condor with a high Options Volume.

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.

sell MRNA iron condor ROC
A short Iron Condor for MRNA that expires in 54 days has a 58% maximum return.

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.

Trending Articles

6 thoughts on “鐵兀鷹Iron Condor虧損時最佳的補救策略”

  1. hello, could you touch on 0.20 delta and how it relates to the safest and most profitable trade please? Thanks!

    1. From our experience, 0.20 delta strike prices give us the best balance of high premium and enough distance from the market price to be OTM before expiration.
      Then we use the following Options Scanner filter settings to find the safest and most profitable trades:
      >67% IV Percentile to have a high chance of contracting IV
      >$10 billion market cap to make sure the stock isn’t easy to manipulate
      >30 days to earnings so there is no sudden IV spike

  2. I always thought I need to roll all 4 legs to the Iron Condors.
    Thank you for sharing a different perspective.

    1. Since Iron Condors have 4 legs, rolling all 4 costs quite a lot in terms of transaction fees.
      So I prefer to close the winning vertical spreads, and only roll the 2 legs that are challenged by the market price.

Leave a Comment

Your email address will not be published.

error: Content is protected !!

WAIT

Receive Exclusive Trade Tips

Don't go

Receive Exclusive Trade Tips
Copy link