How to Handle Iron Condors
"Loading up" will have your profits shipping out.
Is it better to buy high-probability iron condors at 0.10 deltas on call and puts for like a $0.20 credit and then just load up on contracts to make the higher monthly income, or is it better to buy lower-probability iron condors for around $0.75 credits and then adjust at the break-even points as needed to roll up or down?
Dan Sheridan and others say that adjustments are the key to making profits every month on iron condors. I hate to just close out a condor if they're correct and adjustments, roll ups, and downs really do work in trending markets.
I have great respect for Dan Sheridan. He knows what he's doing. I removed the other name Minyan Joules mentioned because I don't know of him, and he sells videos and makes big promises. I can't support that.
My basic philosophy when trading options: The strategy you choose is important, but long-term success depends on your ability to manage risk.
Regarding iron condors, I believe that risk management -- the ability to adjust existing positions coupled with knowing when to close trades that have gone awry -- makes all the difference in whether you succeed as an iron condor trader.
I can't make this bold statement: Make adjustments because they will be profitable.
But, I do believe that after you adjust a position, your risk/reward profile is improved and acceptable to you, and that suggests you'll make money going forward.
When making that adjustment, you trade based on your best judgment at the time the trade must be made. That addition to the old position will not always earn a profit. But, over the longer term, you'll only own decent positions after the adjustment.
It's a bad idea to take an iron condor (or one half of it) that's too risky to hold and then adjust to give you a new, less risky, but still poor position. If you can't transform the position into one that you want to own, then you're better off closing the position, taking the loss, and moving forward with a new position that you do want to own.
Holding bad positions and hoping for a good outcome is not a winning strategy.
The bottom line is that when you make a trade to adjust the position, it must improve what you currently own. That's why it tends to be a money maker going forward. No guarantee. But you had no guarantee when you initiated the iron condor.
Regarding trending markets: Adjustments control risk and iron condors don't do well when the market moves too far in one direction. The results depend on how far the market trends, and just how quickly you make adjustments to iron condors. Some traders wait for a long time -- perhaps until the short strike moves into the money. Others move more quickly, based on the delta of the short option. No one is "right".
It's truly a question of where your comfort zone lies and how you want to move positions back into that zone. Take a look at the idea of adjusting iron condors in stages.
After all that, it's time to return to your question.
FOTM vs. OTM call and put spreads
When trading options, there's almost never a "best" or "better" situation. Each alternative has merits and a great part of knowing which is better for you depends on understanding the boundaries of your personal comfort zone.
However, this is one of those situations in which I have a strong preference, and I'll share that with you.
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