Introduction to iron condors III. Adjusting the position.

Adjusting Iron Condor Positions

An iron condor is a market neutral strategy that performs best when the underlying stock or index trades within a range, as opposed to making a large move in either direction. Despite our wishes, sometimes those big, unwanted moves occur.

What should you do when that happens?

  • Close your eyes, and hope the market reverses direction?

  • Close the position and lock in your loss? If 'yes' how long do you wait before making that decision?

  • Are there alternatives?

Here's what I believe represents a trading philosphy that allows you to succeed over the long term:

  • There are no mandatory rules

  • There is no single 'best' adjustment strategy that always produces the best results

  • To succeed over the long term, it's important for you to

    • Protect your profits and not gamble them away.

    • Not allow small losses to grow into huge losses

    • Be willing (not anxious, but willing) to accept losses and move on to another investment

  • Understand that

    • Iron condors provide profits that are limited to the cash collected.

    • Potential losses are higher than potential profits.

    • Most of the time you collect all, or a substantial part of that maximum.

    • This method cannot win every time and you are going to incur some losses.

    • Your job is to avoid allowing any loss to approach that maximum.

Specific adjustment strategies are discussed here.

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