One of the questions that traders of Iron Condors face is adjustment. There are multiple choices that can be done, but each one of them should be viewed as a separate trade. Among the many possibilities there is a choice of placing another Iron Condor (I.C.) within the original I.C.
Below is a specific example. On Thursday (6-21-2012) morning the RUT, Russell 2000 cash settled index, was trading at $784 with a weekly ATR (Average True Range) of about 30 points. After attempting several I.C.s with different strike levels, the following one executed twice.
Thursday (6-21-2012)
7:30 AM PST
BTO + 2 June wk E
815 call
STO – 2 June wk E
810 call
784 current price
STO – 2 June wk E
755 put
BTO + 2 June wk E
750 put
(Figure 1: IC on Thursday AM, RUT at $784)
At the time of entry, the volatility was so low that for the moment, I was questioning the wisdom of executing this trade. Anyhow, the possible rate of return (25%) within a week looked worthwhile for taking the risk. The total credit for the I.C. was 0.99 and each wing spread was five points wide; hence the max risk is (5.00-0.99) 4.01. Once again this trade was done on Thursday (6-21-2012) morning and by Friday mid-day the RUT has dropped almost 20 handles from… Continue Reading
