Here's an example of an iron condor trading plan: Example of An Iron Condor Trade Journal Roll Your Spreads Again, another mistake I know from personal experience. If you wait too long, you'll get runover. Know where you'll adjust the iron condor, and if the market hits your level, then adjust. No matter what your plan is, THE POINT IS TO HAVE AN ACTUAL PLAN. I'll add this in combination with my "delta bands" to best optimize my adjustment areas. Or you could eyeball the chart and look for key levels of support and resistance. Other people set alerts when the value of one side of the iron condor gets too high. Some people use delta bands, where you figure out your maximum directional exposure on a position, and adjust if the market sees a move to a certain level of exposure. It's all about what is most comfortable for you. There's no perfect answer, and there never will be. If you adjust too late, then you'll be locking in a loss on a trade.Īnd if you adjust too early, you'll feel like an idiot as the market reverses and you lose out on potential profits. How do you pick out your adjustment points? What you should do is pick out points where the market has moved enough to require you to adjust the trade. It's a statistically based trade, and you should treat it as such. Iron Condors can almost be completely automated. it uses VXX puts that give the position an extra "kicker" because of how VXX trades. One of my more favorite "Embed" trades is a little trickier. These kinds of trades will reduce your time decay profits in exchange for your position not getting blown out by strong movement.Īll of these have different tradeoffs depending on what the market is giving us. Embed Long Delta Plays Into Your TradeĪnother way to start off truly "delta neutral" is to add another set of options to your iron condor. So consider starting off with some bull call spreads or long calls to hedge your upside. If stocks are in a rip-roaring bull market, you can't afford to start off short, because you will end up with a ton of trending volatility. Here's an example of an Unbalanced Iron Condor:īy going half size on the call side, you can start the trade "delta neutral." Then, if the market starts to rip higher, you can add more call spreads, or roll the call spreads higher. This will help to neutralize some of your initial short exposure. The simplest thing to do is don't sell as many call spreads.
![iron condor example iron condor example](https://optionstradingiq.com/wp-content/uploads/iron-condor-greeks.png)
There's a few variations you can use when putting on a new iron condor trade. You know what? Nobody is forcing you to have a "plain vanilla" iron condor. So what can you do? Let's take a look at some simple adjustments. I talk more about it in this post: The Hidden Risk In Iron Condors but from experience I know that, most of the time, your iron condor will have more risk on the upside. I know that most traders are always on the lookout for some kind of market crash. A blowout move can give you a large loss. If the iron condor hasn't been active long enough to generate profits, the risk of a fast move can put you in a bad position. The second thing to avoid is fast movement. This happens in bull markets when stock indexes "grind" higher, and in bear markets during crashes. This is where the market moves constantly in one direction. The first is avoiding trending volatility. There are two things you need to avoid when you are trading iron condors.
![iron condor example iron condor example](https://optionstradingiq.com/wp-content/uploads/Iron-Condor-with-Long-Term-Hedge-and-implied-vol.gif)
Here Are The Risks To Hedge Against In An Iron Condor It depends on what kind of adjustment you need, what the market is doing at the time, and what kinds of premiums you can get. What's the best way to adjust iron condors?
![iron condor example iron condor example](https://optionstradingiq.com/wp-content/uploads/HD-chart-for-iron-condor-trade.png)
You should focus on active risk management, and have a plan before you even put on the trade. It pays to be proactive when trading iron condors. It gets complicated, but just understand that you can have a low volatility market that just moves in one direction, and you'll get runover. In fact, the "odds" priced into the trade can be a bit misleading.
![iron condor example iron condor example](https://investingwithoptions.com/wp-content/uploads/2017/06/img_5942d42214e7f.png)
That the odds will be in your favor so it's not a huge deal. There are some option trading educators out there that will tell you to "set and forget" your iron condors. that's where things can get a little tricky. It's when the iron condor trade gets tested. As in you should expect to win over 75% of the time. You're taking larger risk, which means your odds are good. There's always a tradeoff between risk, reward, and odds. See how your maximum risk is much larger than your maximum reward? Here's an example of a standard iron condor: But with those high odds, it means that the risks are much, much larger than your potential profits.