This article shall look at adjusting an Iron Condor based on a changing bias. A live trade example will be utilized showing how the trade evolved from a simple Iron Condor that was supposed to stay in a range to a more complex “Condor within the Condor” type of trade.
Starting point:
Thursday morning 7/19/2012, the RUT was trading at $803 in what appeared to be a channel so the following strike prices were sold: the 825 call on the upside, and the 780 put on the downside. More “breathing room” was given to the upside (825c-803=22points) than to the downside (803-780p=23) due to the possibility of RUT lifting up to but not above the 825 level. Figure 1 lists the I.C. trade.
Thursday AM, 7/19/2012
BTO + July wk D 830c @ 0.78
STO + July wk D 825c @ 1.30
The RUT $803
STO + July wk D 780p @ 2.17
BTO + July wk D 775p @ 1.69
Figure 1: Initial Iron Condor on Thursday AM, 7/19/2012
When the math is done, taking into account all four legs, one dollar was taken in while the risk was four dollars. The rate of return, for the week this trade would be on would be 25%; overall this was a very good outlook. Nonetheless, keep in mind that the trade would have to stay within the 825 and 780 range; and it did for the first two days. By Monday’s open, it was clear that the lower leg, namely the 780 put could get threatened. It is at that point that a decision had to be made that was either responsive or reactive. See this article.
The choice was made to place another… Continue Reading
