From Jim;

Hi Mark,

If I’m short the 630/640 put spread and the index is trading at 645 then I agree it does not matter what I collected and I should just get out. But I don’t know if that is actually a good point at which to adjust though or if earlier would be better.

I know that if I constantly close out positions that have a small loss then I won’t make any money. I know that if I don’t close out my positions at all, then one day I’ll have a large loss. But there is a large gray area in between those two extremes where I don’t know how to evaluate the position.


Welcome to the real world.If it were easy, everyone would trade iron condors or sell credit spreads.

I didn’t mean to suggest 645 was the ideal decision point in my example.Getting out earlier is definitely recommended by people I respect.But many traders elect to donothing until the strike price is breached.This is one of those very important comfort zone decisions – and no one can advise you on this. They can tell you how they do it, or how successful one method has been for them, but it’s still your money and your comfort one.

There’s no reason to believe any specific method is better than another.Comfort zone and trading experience will determine at what point you can’t stand the pain or when fear of a big loss takes over. [But a trader must avoid having that fear when RUT moves 10 points from the original trade.If that’s the fear point, then iron condors are unsuitable for that investor.]

You are absolutely correct.Premature panic or rushing to exit every trade that has risk – just because the risk has increased by a small amount is not viable, and will result in losses.

Selling option premium, such as trading iron condors, is not risk-free.Nor is it an advisable strategy for everyone.One reason for writing option spreads that are fairly far out of the money (but no so far as to prevent collecting a decent premium) is so that adjustments are not a part of the trader’s daily life.Adjustments are costly and necessary, but they do reduce risk and are advisable.

Each trader must choose a comfort zone.For example, if you want to adjust RUT spreads any time RUT moves to within 20 points of your short strike, then you must choose spreads that make it unlikely that RUT gets to your price any time soon.Thus, selling spreads that are 40- or 50-points OTM won’t work for you.

How to tackle the gray area is not something that anyone else can solve for you.If you are quickly made to feel the need to adjust (BTW, you can close 5 or 10% of your position as a first adjustment, no need to close them all), then perhaps the underlying asset is too volatile for you.Consider choosing another – for less risk and reduced profit potential.

It takes time to work out how much risk you can afford to take.It takes time to decide how much size to trade.It even takes time to find the right underlying, assuming you choose not to trade individual stocks.Have some patience.

One more suggestion:It should be a longer-term goal for you to trade this type of position.Don’t let the fact that the result of a specific adjustment turned out to lose money have any influence on your future adjustments.Markets will reverse after you adjust and they will continue to move against you if you fail to adjust.That’s the way it is.Try to have a consistent pattern and trade within your comfort zone – even if that means remaining with one-lots for now.

Twitter: MarkWolfinger