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Minyan Mailbag: Making the Most of Iron Condors


Think outside the box: The cost of slippage makes the difference here.


Dear Professor Wolfinger,

My "science"-oriented brain struggles with the "art" side of options investing, as I decide how to adjust my (now risky) iron-condor position.

My thought process in an approach I was bouncing off you is that I'm treating a 620/640 bear call spread as 2 distinct bear call spreads: 1) 620/630 and 2) 630/640. This is what I'd have if my 2 ICs -- bought weeks apart -- were actually bought in separate trading accounts.

Just because I have 2 IC positions and the proximity of the call side of the 2 positions created a 20-point call spread, I should still act as if they were 2 separate 10-point spreads, not 1, 20-point spread. Just because I have 2 ICs in 1 trading account, why should I act differently than if the 2 ICs were in 2 separate trading accounts?


Dear TR,

You're not missing anything strategic - but you're ignoring the real-world expenses associated with trading these positions and how to make the best trade possible (most likely to boost the value of your account) under the circumstances. I'm encouraging you to think in terms of minimizing losses, cutting expenses and having a position that fits within your comfort zone.

You're correct: The 20-point spread is the equivalent of 2, 10-point spreads; but when it's time to adjust a risky position, focusing on that scientific truth hurts your trading performance.

If you're going to strictly abide by your rule, "Don't adjust until the strike is breached," then your plan is viable.

But I believe you're missing a subtle point associated with the "art" side of trading. I understand how you feel, as I was also educated as a scientist (chemistry), but I'm suggesting you consider the following:

With an index priced near 600, I believe it's a losing tactic to make an adjustment that moves your short option only 10 points further out of the money, when there's a high probability that you'll be closing the spread you just opened later that same day - or the next.

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