Iron Condor Adjustment
Written on March 24, 2008 by OptionsRopeaDope
Today was not a good day for my account value, although things still seem very safe. My QQQQ condor and SPY condor are still very, very safe and should be 100% profitable.
The IWM condor, however, took it on the chin today thanks to the rally. I had already adjusted the call side of this trade down (if I hadn’t, I would still be fine!) Oh well, this happens sometimes.
Shortly after the open I noticed that the deltas of my short strike on the call side were rapidly accelerating over 20. After doing a little analysis, I realized I needed to get my deltas neutral fast. Looking at the May Option chain (the condor is in April) I chose the May 74 call, which had a delta of 30 at the time. My deltas were -600+, so I purchased 30 calls for 1.38 to get my deltas back closer to 0. They are now down to -35.
But more importantly, I stopped the bleeding… look at the chart of this trade below:
I’m pretty much delta neutral… and I’ve locked my losses at about -600, unless IWM falls below 57 (about a 20% drop at this point). I have several chances to profit though, and after things settle a bit in the next few days, I’ll make another adjustment to generate some more credit to wipe out the loss. Among my choices -
- if IWM falls, and the delta of the Apr 73 call falls below 15 again (likely) I’ll sell back the protective May calls, and should be back to a profitable-at-expiration trade.
- If IWM stays put, or rises, I’ll roll up the puts for a credit.
All in all, I’m ok with how this panned out - I’m prevented from reaching my max loss (the most important point) despite the huge moves recently. Without the call - My loss would be devastating, and I wouldn’t be sleeping at night 
Also, I have a plan with a very high chance of turning this into a winner. And the rest of my condors took a groin kick with the move and IV increase, but are still in a great position to let me exit a winner overall in a couple of weeks.
On the lessons learned side, I hesitated a bit, and I could have stopped the bleeding sooner, as I thought the rally today might have a pull back. Alas, that was not to be, and I’m still not quite delta neutral.
When I was newer to options I would have crossed my fingers and hoped for the best on this one. Obviously, that isn’t what smart traders do. Always have a plan, and always stop your losses. It just takes once seeing the magic of this, too, to make you appreciate the importance of keeping some cash in reserve for adjustments.
And now for something new… I’m going to try to provide a greek profile when I update my trade statuses:
| Delta | -116 |
| Gamma | -35 |
| Theta | -41 |
| Vega | 50 |
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Posted in Real Trades, Mistakes, Iron Condors, IWM
