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Iron Condor Adjustments

Last week in our Jan 12 Option Trading Lab we had on an iron condor trade where we were able to use one of our more favorite iron condor adjustments – one which we haven’t really talked much about in the past – but which we’re including as part of our online training materials that you can learn more about by joining our free iron condor / option income newsletter by clicking here.

This is a great adjustment that can be used both with iron condors and credit spread trades. As you will see below, what it can accomplish is that it can ‘lock in’ a guaranteed profit in the trade – so that no matter what happens going forward there is no way the trade can lose. There is no longer any risk in the trade. In addition, it can also allow for further upside profit potential, creating an iron condor / credit spread position that contains the best of both worlds: a guaranteed profit no matter what happens – ideally at your initial profit target (like in the case study example below) – along with the chance to make even more profits without being exposed to any more risk.

Iron Condor Adjustments – Example

Below is a risk graph of this iron condor position after our adjustment was applied…

At his point in the trade, we have a profit of $551.00 (which was our profit target when we first put the trade on) locked in. As you can see by the hard red horizontal lines in the risk graph (shooting off to the left and the right) regardless what transpires in the market going forward – this is our ‘worst case scenario’ – or our ‘maximum loss’ – or I should actually say our ‘minimum profit – that we will walk away with. No matter what happens here going forward – at the bare minimum we will walk away with a trading profit of $551.00. We are guaranteed that amount.

And on the upside – if you take a look at that thin red ‘hard line’ triangle towards the center of the risk graph – the tip of that triangle represents our maximum potential profit in this trade.

If the RUT (which is the underlying we are using in this particular example) finishes trading at expiration day anywhere between the 770 and 780 trading levels – we could finish off this trade with a final profit of up to almost $1,000.00 – very near twice (double) the initial profit level target we had set when we first put on this iron condor trade.

And once again, we have the opportunity to cash in this ‘double’ without exposing ourselves to any further risk. We have this opportunity while still being guaranteed our initial sought after profit target of $551.

Iron Condor Adjustments – Win – Win…Win

This gives us the ‘best of both worlds’. We’re able to ‘have our cake and eat it too’.

Furthermore, if you take a look at the ‘bowed’ white line (our current profit and loss line in the trade) that white line will continue bending and bowing upwards towards the top of the tee-pee profit tent – allowing us the ability to potentially ‘grab’ a better profit than our minimum $551 from today until expiration day – EVEN if the underlying is trading OUTSIDE the 770 – 780 max profit potential ‘triangle’ area. For example, if we wanted to take the trade off right now – we could do so for a final profit of around $600. And each day we get closer to expiration day, the white ‘bending’ current profit line will continue to rise upwards – providing us with further profit potential.

Finally – this is one of the iron condor adjustments that we could simply just walk away from at this point without ever needing to worry – or look at – again. Since this trade is on a ‘cash settled’ index (RUT) – we don’t need to be concerned with having any ‘in the money’ options suddenly put to us or suddenly winding up short a position. This makes this set up a true ‘set it and forget it’ adjustment. We can walk away and never look at it again. Come expiration day everything will be settled out cash.

These types of iron condor adjustments along with our other iron condor / credit spread / option income trading ‘tricks’ is why we love trading these types of option positions so much and why we find this type of trading so enjoyable and fun.

For more info on how you can learn more about exactly how this iron condor adjustment works and how you can use it yourself – as well as a host of other great iron condor / credit spread / option trading adjustments  - join our free iron condor / option income trading newsletter by clicking here