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Home > Iron Condor Adjustments > Iron Condor Adjustments – Can I Have My Life Back Please?

Iron Condor Adjustments – Can I Have My Life Back Please?

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When I first began trading the Iron Condor, my game plan was to leave the trade on all the way to the bitter end.

After I placed the trade, I would just leave it be until expiration day where the options would expire worthless and disappear into option heaven.

I just assumed this was the most effective way to play the trade – especially since it allowed me to save money from my broker by not paying to close the trade.

But I’ve changed my game plan since then.

After spending far too many nights worrying and not being able to fall asleep – along with a lot of expiration day close calls – painful ulcers – and a near hernia or two – I’ve altered the way I manage my iron condor trades.

Now – as soon as I place the trade, I set a contingent order with my options broker to buy back the call spread – as well as the put spread – once I’ve made the majority of the profit in each spread.

Here’s an example: Let’s say I sold an iron condor on the index XYZ for a total of one dollar – or around fifty cents each side.

After I place the trade, I would set up two contingent orders with my broker. One would be to buy back the upper half spread of the iron condor for ten cents – and the other to buy back the lower half spread of the condor for five or ten cents.

Now perhaps some of you out there might be scratching your head wondering why I’d do something this. I know when I first started trading these – if someone told me this was their game plan, I’d be scratching my head. Seems like a futile and even sort of dumb thing to do.

Personally I don’t think so.

Sure I might make less than if I tried to milk them all the way through to the very end.

But then again, not necessarily.

Let’s take a second look at the amount of money we are talking about here. Ten cents per side – or twenty cents total. Okay – sure – it’s nothing to sneeze at – but when you step back, get a broader look, and start to take a few other things into consideration – it can actually start to look quite miniscule.

What’s more important (at least for me) – is that by closing my iron condor trade early, I have LOCKED IN FOREVER the majority of the gains on that side of the trade. And no matter what happens going forward – those gains that I’ve just banked CAN’T be taken away from me.

AND – I’ve reduced my risk.

AND – I’ve created the potential to make even MORE money on the trade than was originally possible when I first initiated the trade – WITHOUT increasing my original risk.

Let me explain:

I’ve found that many times during a trade, the premiums in options can drain quite rapidly. In fact, its possible for a spread to drain the majority of its premium in a matter of days.

Going back to our example – let’s pretend that I put an iron condor on about 40 days until expiration. For the trade I receive around a 1.00 credit. Fifty cents for each credit spread on either end of the position.

Then, as soon as I put the trade on, our underlying starts to move down and continues doing so for a couple trading sessions.

On the fifth day (just 4 days after I put the trade on), I look at my position and see that I can now buy back the vertical spread on the call side of my iron condor for just .10.

If I do nothing, I am choosing to risk that CALL spread margin for the next 36 DAYS for a measly $10.00 of remaining profit (per spread).

On the other hand, if I buy it back for.10, I lock in the bulk of the profit for the CALL side – making that ROI in just 4 days.

Another thing to consider, is if the stock or index we are using abruptly changes direction and heads back up (which of course DOES happen all the time) we really have nothing to be alarmed about since we’ve removed those upper options and eliminated all upside risk.

In fact, if XYZ bounces back up high enough, I could RESELL the same CALL spread that I originally sold – for the same original credit – or maybe even more – increasing my total ROI for the same amount of RISK that I began with.

And even if I don’t resell any spreads – but just buy them back at.10 to close out the entire trade – it reduces my risk, frees up my capital sooner, increases my ROI over number of days, and gets me out of the trade MUCH more quickly than if I were to try and hold on all the way until expiration.

See, I really love the idea of being able to tad a ‘trading vacation’ – or what I mean by that is a ‘break’ away from trading – of having to one way or another ‘engaged’ in the stock market every day. I love being able to be in a trade for a week or so – and then take a week or so off – away from my trading computer screen. I love being able to get out and do other things without having that little worrisome ‘trading nag’ in the back of my head – always wondering what’s going on in the stock market and wondering if my position is doing okay.

And being able to temporarily take some time to ‘get away’ from the game – from the iron condor and ‘option trading’ and ‘vega’ and ‘adjustments’ and ‘theta decay’ – to be able to go out and do other things during market hours without always feeling the need to check quotes on my phone to see what the market is doing – and just having the opportunity to fall into bed at night and sleep like a baby without a care or worry about whether or not there will be a huge gap tomorrow morning at the open…

That’s priceless.

Or at the very least they are WITHOUT A DOUBT worth every penny of the ridiculously small .20 cents or so of potential profit left on the table in exchange for getting out of my monthly iron condor trade early – at what is STILL an incredible monthly return.

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