When the markets are non-directional, those are the high-profit, glory days for iron condor (or other premium-selling) traders. Enjoy it while you can because it’s not always going to be that easy.

In fact, until yesterday’s rally, the market has been moving steadily lower this year – at a pace that suggests 2009 can be much worse than 2008, even the decline occurs with reduced volatility.

I don’t know which strike prices were chosen by other iron condor traders, but until this week I have been very fortunate. But now some put spreads I sold as part of an iron condor position have moved close enough to being at the money, that I am concerned. Not concerned enough to make any major adjustments, but I have taken some defensive action.

On Tuesday, RUT traded below 360 and I am short a bunch of RUT March 340/350 put spreads. I have no intention of holding this position through expiration, but right now I am unwilling to pay the required price to exit the position. Instead I am making small changes that improve my risk/reward situation.

Before describing the new trades, I want to mention that the purpose of disclosing my trades is not for anyone to keep score of how I am doing (that cannot be done because I do not report all trades on Twitter – username: MarkWolfinger), nor am I recommending these trades as standalone investment suggestions, but because some of you may find these ideas useful and adopt them for you own troublesome situations. I must mention that these trades are suitable when trading high priced index options, but are inappropriate for the vast majority of individual stocks.

1) Buy Mar 360P and sell more 340/350P spreads.

On a ratio: Buy one, sell 3,4, or 5 spreads. I prefer the higher ratio when my position is not already too large for comfort. The net cost depends on the ratio, but I collected cash by doing 1 x 5.

At first glance the ratio feels wrong, but because you pick up an extra put, losses are limited ($3,000 if the expiration settlement price is 340), and those losses are reduced by $100 per point as RUT moves lower. A lower ratio costs some cash, but it’s well worth it for the ability to pick up extra long puts – and those puts have a very useful strike price.

This is not a good idea for individual stocks because of the increased risk that the underlying can settle near your point of maximum pain. With the high priced index, this trade provides protection if the market takes a steep dive – perhaps 10% – a large enough move that owning an extra few options makes a difference. If your trade a $50 stock and it drops 10%, the final price of $45 will hurt and not help.

2) As an alternative, consider covering some Mar 350P and selling the Mar 330/340 put spreads on a similar ratio. This is not as ‘clean’ and the resulting position may ‘feel’ uncomfortable.

3) Buy a few OTM Apr calls and puts. No details necessary because you want options that provide help at an RUT price that suits your risk profile. Your broker should provide the necessary risk graphs.

I posted some of my ideas about iron condor adjustments previously.