The good news is, that with Iron Condor you can be wrong only once, not on both sides. But when one or the other leg goes bad what would you do to defend your position?

Defending Iron Condor is the same as defending any credit spread, be it put or call spread.

I opened an Iron Condor against SPX 2105/2110/2045/2040 last week and collected $70 premium. I could see the stock market being weak so I skewed my trade towards downtrend and opened it with more room to the downside.

It didn’t help much as on Monday the stocks got hit hard thanks to energy stocks. It was in the morning when I didn’t know that SPX would recover by the end of the day.

So I decided to roll the put side. I chose to keep expiration day the same, but lowered the strikes.

I rolled my put side from 2045/2040 to lower 2035/2030 strikes. To collect credit I had to buy back my one contract and sell two new contracts increasing my risk. I rolled the trade and collected additional $30 premium.

Why I did it? I hoped that by lowering the strikes the trade could still stay safe and still expire worthless for a full profit. Therefore I accepted a higher risk for the remaining three days of this trade.

Yesterday and today the SPX continued in a sharp decline. Surprisingly, on Tuesday the market recovered all day losses, but today SPX reclaimed them and fell even lower attacking my new 2035 strike.

What to do in such situation?

There are only a few options since the trade is so close to expiration:
 

1. Close it and take the loss
2. Roll it further away in time but same strikes for credit
3. Roll it further away in time and try to lower strikes, but only if you get a credit, or small (really small) debit

 

I am not going for a loss! That is not an option for me. So what can I do here?

I will try to roll it away in time and lower the strikes. If I won’t be able to roll it away and lower the strikes, then I will roll it in time only.

By rolling it I am “buying” more time for the market to recover back above the current strikes allowing it to expire worthless for a profit. That means that I am still bullish on SPX and that the market would go up.

If I am wrong and this is a beginning of a deep market decline, then I would have to take a loss and close the trade. However, I do not think that we are in such bad shape that markets would slump deep down and stay there.

Then the question is, how far away and when to roll? How much time would this market need to recover potential losses?

The last decline lasted almost a whole month. If we are about to see the same decline this time again, I would need at least a month to recover.

Thus I tend to roll into the next month expiration, which would be January 9th and give the market a whole month. After that we will see what would happen next.

When to roll? If the market continues down in a frenzy sell off, then there may be nothing to be done and the roll may be out of question. It would be better to close the trade. I will wait until Friday and see where the market will be to decide whether to roll or close for a loss.

Happy Trading!