Trading Iron Condors V. Adjusting with calendars

When trading iron condors, we often require taking some action that reduces

  • the probability of incurring a significant loss
  • The size of a loss resulting from an imminent threat
  • or both

To reduce the probability of taking a loss, we may choose to roll our short options to strikes that are father out of the money. That clearly makes it less likely that we will suffer the loss – but it does nothing to reduce the number of dollars at risk (In fact, it places additional dollars at risk – the cost of the roll adds to potential losses).

To reduce the size of any possible loss, we may elect to close part of our position or add a debit spread. Sometimes we reduce size to zero by exiting the trade.

Calendar and Diagonal

There are other alternatives. Please remember that any trade that reduces risk is considered to be an adjustment. For that reason, it is not possible to consider every possibility.

One effective strategy is the purchase of an out-of-the-money calendar or diagonal spread. One note of caution. These trades can make a substantial contribution to the overall profitability of the trade – but these are not TRUE adjustments.


A TRUE adjustment never loses money at the price level where the original trade needs help.

The calendar and diagonal spread will earn a profit as the market moves towards the strike of the calendar strike, or the diagonal’s short strike. However, if the move continues, these spreads turnaround and begin to lose part of their value when the underlying asset moves too far. Thus the primary rule when adopting one of these spreads as an adjustment is

    If the market moves too far and the short strike is reached, it is important to exit the calendar or diagonal.

      Yes, if you hold longer, positive theta may turn it into a bigger winner.

      Yes,if you hold longer there may be a large payday when the iron condor expires worthless and the calendar (or diagonal) turns into a big winner.

      BUT – we do not make adjustments to gain extra money. Yes, that is a good result, but it is not the primary objective. That objective is to reduce risk. For that reason, it is important to unload the calendar or diagonal when it reaches the point where it will begin to LOSE value. It is essential to prevent losing money on both the original trade and the adjustment trade.

My recommendations for using calendars or diagonals as an iron condor adjustment

  1. Use only when the spread is inexpensive to buy
  2. Use this as an early adjustment – before risk-reduction is essential
  3. The short strike must not be closer to the money than the current iron condor short
  4. Use risk graphs to help select the strike. Begin the search one strike father OTM than the current short
  5. To give the adjustment spread an opportunity to work, the number of weeks between expiration dates should be 3-5


Full screen video

Put spread alone

with 2 calendars

with 4 calendars

The graph differences are not large. However, when this calendar spread is inexpensive (and only when it is inexpensive) and the adjustment is not made under duress, the addition of an OTM calendar spread can have a positive influence on your iron condor position.

I would not use this trade unless the trader

  1. Does not anticipate a big market move
  2. Understands the need to exit this trade and find real protection when the market places the original iron condor (put spread in this example) in jeopardy
  3. Has the discipline to follow the rules above. This is not the trade for anyone who will freeze when it is time for a true risk-reducing adjustment

So why mention this type of spread when it is has such little appeal? It works when the trade is made as insurance. In other words, when the calendar or diagonal is fairly far out of the money, and thus inexpensive. In that situation, the calendar can return a very handsome profit – and serve as decent protection.

It also works for the high-risk trader who seeks a big expiration profit. The calendar adds to the risk of holding an iron condor position, and that is why I do not recommend it as an all-purpose adjustment trade.

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