Trade Details & Summary

DIA Iron Condor (LIVE Adjusting Trade)

This neutral iron condor in DIA is need of a quick adjustment early this week as the market continues to rally. In this video we'll discuss why I'm adding an additional put credit spread while also choosing NOT to close out of our current put credit spread due to pricing reasons.


More Discussion

Was This Helpful? Add Comments/Questions

  • Kirk, Your presentations are awesome! Love your work.

  • It’s not that I avoid skew at all costs it’s just that when adjusting I don’t want to take on anymore risk than I original said I would. If you skew something you’ll increase the risk size which starts you down a bad path (mentally) I believe.

Show Video Transcript +

In this video update, I want to go through my thought process on adjusting a current iron condor that we have in DIA which is the Dow Jones ETF, one of the major market ETFs. We originally sold this iron condor when implied volatility was high, right about this day in here, right about when the market was heading lower or is definitely at a low recently.

And unfortunately, implied volatility has moved lower which has been good, but the stock price has moved up against our call side of our iron condor. What we’re going to look at doing today… And again, this is all live real-time, real-money trades, no paper trades.

We’re going to look at making an adjustment to this position by rolling up or adding put side to the trade. Alright, let’s go through this entire process. Here is the original trade that we had. We did three of these iron condors in the March expiration cycle.

At least at the time that we’re doing this video, we had down below the market the 135, 132 credit put spread, and then above the market, we had the 165, 168 credit put spread. Now, you’ll notice each of these spreads is $3 wide, and we made three contracts across the board.

That just gives us a framework for how we’re going to make the adjustment because we want to mimic that type of framework at $3 widespread and three additional contracts whenever we make an adjustment.

This is what the iron condor looks like right now. It’s this green line. This is our profit and loss at exploration. And what you'll notice is that the market is trading right about here, this dotted blue line right in the center. You can see today it breached our breakeven point to the top side.

When we initially made this trade, the market was trading more in this direction. It was an even iron condor. What we want to do now is we want either one of two things. We can talk about both.

Roll up the put spread side that we have currently, it’s worthless, it's not worth anything, so you could close out this position, roll it higher, or we could add a new put spread below where the market is trading just a little bit closer to the current stock price.

And what that’s going to do is that’s going to help increase our breakeven point. It’s going to help move our breakeven points out a little bit further. But more than that, it’s going to help reduce some of the potential loss should the market continue to move higher.

Because again, at this point, by making an adjustment to trade, we’re saying, “Look, we recognize that the markets moved against us and we want to make an adjustment to first and foremost reduce risk.” That’s always the number one goal of making an adjustment.

If we go in and we look at a simulated trade here, you can see… And we’ll add a simulated trade then we’ll do the actual order in the market itself. But you know that our strike prices on this stock were down the way, way, way below the market at the 135 strike and the 132 strikes.

You can see that those options are now worthless, they are worth nothing. They’re worth two pennies, maybe a penny if you close out the position. If you wanted to close out of those, you could buy those back. In our case, doing that would cost us more money in commissions.

In this case, by rolling up, we’re not going to buy back the original put spread down below the market. It is profitable, it will expire out of the money beneficial in all likelihood, there's only half a percent chance that the market gets back down there in the next 18 days.

These are going to expire, the side of the trade is going to expire worthless, we don’t have to do anything with it. What we’re going to do instead is we’re going to go ahead and add put spread down below where the market is trading. Now, our stock or our short strike right here is at 165 on the call side. We don't want to add anything higher than 165.

And this is where you can have a little leeway here, is the how much or how high you want to roll this thing up. In my opinion, with about 18 days to go, that’s about three weeks of trading time to go, I want to make an adjustment that reduces risk, but still leaves a little bit of room for the stock to come back down.

In my case, I’m going to look at selling something around the 162’s as a starting point for our short put strike. I want to sell the 162’s, and then I want to go out $3 to the 159’s. Now, why did I go out $3? The reason I went out $3 is that our original strike width on the original iron condor was $3 wide.

I want to mimic that same type of width so that I have an even or balanced condor. If I don't do that, then I’ll have askew to one side or another. And then I also want to mimic the number of contracts that we’re trading at the same time. I want to make three contracts to simulate the number of deals we have for the original.

Now again, this is what this new iron condor is going to look like. And I’m going to zoom in here just a little bit. Remember, we’re still going to keep this position over here. Technically, we’re adding a little bit of risk to the portfolio. But this position is so far out of the money; it’s just not worth it to clean it off and clear it out.

But you can notice now we have this new even and balanced iron condor. If I were to move in one of these strikes and not do a $3 widespread because that was the original trade, is $3 wide, notice how we have a little bit of risk to one side or another, we start skewing this iron condor. And we don’t want to do that.

We want to make a very balanced and even adjustment. In this case, we reduced it to a $48 credit that we added for each of these that we sell. We’re reducing risk by about $150 on this iron condor. It’s not the last trade that we can do. We can move this in closer another time if we need to and make this an iron butterfly.

But for now, like I said, I still want to leave the market a little bit of room to fall. There’s still three weeks to go, the markets been on a little bit of a rally, we’re not going to discount the fact that it could continue to rally, but I want to leave room for DIA to fall back down.

And again, our breakeven to the downside is about 160 ½. If we go back to the charts here, about 160 ½ is right in this range. We’re still leaving a little bit of room for the market to fall between now and expiration and to make some money on this trade if possible.

That’s the adjustment that we’re going to make. We’re going to go ahead here and hit confirm and send. This brings up our real money order dialog box, and you can see the credit that we’re getting is about $144. We’re going to go ahead and try to fill that right now and see if it gets filled here live time.

It might not because we need to find a couple of people to buy this from us in the market. But you can see this order is working now. Right now, it's about 12:25 in the afternoon, so we’ll go ahead and pause this video, see if we can get this thing filled here in the next couple of minutes and then come back and recap.

Alright, we’re back just a couple of minutes later here. And you can see now that it’s about 12:26 and we did get that order filled, real time, real money order filled. Now, we have the subtle adjustment that we made to DIA. We’ll continue to play this thing out here over the next couple of weeks and see where the market goes from here.

But at least, we’re starting to reduce some of the risks in this iron condor position. As always, I hope you guys enjoy these videos. If you have any comments or questions, please ask them right below. And until next time, happy trading!

eBook Download

The "Ultimate" Options Guide

Ultimate Options Strategy Guide

The step-by-step guide on how to set up each of the top 18+ options strategies we trade to generate monthly income. Read the whole strategy guide in less than 30 mins and have it forever to reference.

Download PDF

Join More Than 47,345 Members

Membership is always free & you can upgrade anytime to unlock our live trades.