Learn To "Adjust" The
Iron Condor Spread!

Here is an overview of some iron condor spread adjustments. But first...

"He who can modify his tactics in relation to his opponent and there by succeed in winning may be called a heaven born captain."

Sun Tzu: The Art Of War

This is advanced level information!

If your not quite up to speed don’t worry we’ll get you there.

Remember, there is no “right” or “wrong” with adjustments.

The Key Is To Be Able To Adapt To Market Conditions!

Remember, practice these in a virtual account before you put real money on the line!

While trading there is no shame in taking a small loss if things get out of hand. Even Mike Tyson got knocked out a few times!

Always study your closed trades, think about what you could have done differently.

Let's start with something you may never use...In fact, for this type of trade, it's likely I would never do this. (but never say never...never mind...) I'll explain exactly why later. For now lets use this as an example to "get us thinking"...

This First Adjustment I Call “The Weapon”

It's constructed using a Long Butterfly with Puts. This is an aggressive move.

Here are before and after graphs...

and build graphs like this for Free!

Above is just a basic iron condor spread.

Let's say the major trend has change. For this adjustment let's assume we have gone from a flat market to a fast moving down trending market.

We will be able to get out of our "call side" of the iron condor spread for a profit. (that's the good news)

However, our "put side" will be losing money. (that's the bad news)

With our call side gone from the trade, we are now only working with a vertical spread. Also called a credit spread.

Here is a graph of what this looks like:

If we choose we could convert this to a butterfly. Take a peak at this next graph...

Notice what this does for our future losses.

Nice! let the market do what it wants... we can rest easy!

Now notice the window of profit potential. Very nice!

Have you ever heard that expression "a picture is worth 1000 words"? If my "explaining" is on the weak side, this page may help. Hopefully, it will help you see the "theory of options trading".

Vertical Spread Converting to a Butterfly

Here's A Simple Guideline For Butterfly Style Trades

The put strikes we sold, in this case the 120 puts becomes our stocks "target" price.

This simply means that our max profit potential will be at this price at expiration. In this case 120.

Take a peek at the graph to confirm.

This Is How To Convert A Vertical Spread Into A Butterfly

First, our original iron condor spread position was:

-10 SPY Jun 12 120 puts
10 SPY Jun 12 118 puts
-10 SPY Jun 12 148 calls
10 SPY Jun 12 150 calls

Now the assumption is the market heads south...So, we buy back the calls for a profit. Now we are left with...

-10 SPY Jun 12 120 puts
10 SPY Jun 12 118 puts

Our puts will be losing money, so this trade is looking like an overall loss.

To convert into the butterfly we...

Sell 10 more of our original shorts (in this case the 120 puts) next we buy 10 of the 122 puts..

Therefore our new position will look like:

-20 SPY Jun 12 120 puts
10 SPY Jun 12 118 puts
10 SPY Jun 12 122 puts

Notice that the 118 puts and the 122 puts are both equal distance from the 120 put. We didn't have to do that...

We could have done something like this:

-20 SPY Jun 12 120 puts
10 SPY Jun 12 118 puts
10 SPY Jun 12 124 puts

Instead of buying 10, 122 puts we purchased 10, 124 puts:

Here is what that graph would look like:


Remember the principle with options, when you gain something in one area you lose something in another.

We have now turned this "iron condor spread" trade into a "directional play".

If you're new to this: Don't be intimidated! If this stuff is easy for you to learn... YOU are smarter than me.

You could keep options trading much simpler and still be very profitable. These are just ideas...This is why they call them OPTIONS! With options trading, if you can think it up, you can do it!!

Here is a summary of what we just covered

When to use:

The market is going against you and you believe a major trend change has taken place. Use this early in the trade.


  • Takes most of your capital off the table

  • Gives large profit range to downside


  • You could be wrong in your trend change

  • this move gives you a bearish bias…

How to perform this adjustment:

Sell more of you shorts, go one column above – buy same amount.

Remember, you can perform any type of adjustment you want as long at it makes logical sense. What are your option greeks telling you?

Why I'm not likely to do this...

The original premise behind this trade was to use a non-directional iron condor spread to produce a modest profit with as little risk as possible. If the market is going against me, I'll most likely adjust using a debit spreads or long puts (discussed later).

What I'm not going to do is abandon my non-directional trade premise. Then convert the trade into an directional "out of the money" butterfly option spread.

Not with this part of my "overall" option trading business. In my mind that sort of trade is better left to the "spec" portion of the business. For me, "Spec trades" have different rules, different expectations and different risk/reward ratios.

This is just my way of thinking, feel free to disagree.

The Second Iron Condor Spread Adjustment:
I Call The “Sleep Well” or “Insurance”

To perform this you simply buy puts or calls.

When to use:

If the market goes against you fast and early in the trade- RAPID PRICE MOVEMENT! This is a good choice if you get scared.


  • Protects from fast losses

  • Reduces delta

  • Good chance to still make money in the future

This is a great option if the market is falling hard. Everyone will be looking to buy “insurance”. This will make getting fills much more difficult. In these cases it's easier to get a single order filled (puts) than a spread.

This is a good argument for buying your protection at the very first sign of trouble. This lets you get insurance when it’s cheap, before the rush. Once again it comes down to your personal tolerance for risk.

Coffee Break: When I was younger I worked for an insurance company. One of the popular cliches was: We will gladly insure a house that is on fire… if the premium is right. Just something to think about.


  • Reduces Profits

  • This wrecks your positive option theta - be sure you consider this!

How to:

When you're at an adjustment point (or before) spend up to 20% of the trade margin to buy insurance (puts) - try to cut your option deltas by 3/4 . You can buy at your long strike price or lower.

This Third Adjustment I Call
“Run” – Take Off The Trade

When to use:

  • You are scared, markets out of control…


  • Kills all fear- This is likely the easiest adjustment


  • You’re out of the game

  • Remember you can always wait till conditions are more favorable- or reposition the trade then put it back on

This Forth Iron Condor Spread Adjustment I Call “Divorce”- cut your position by 1/3 to 3/4

  • This takes money off the table which reduces risk.

  • Cutting your position will cut your deltas

The Fifth Adjustment I Call “The compromise” - Buy call or put spreads

-This is likely your best idea…maybe…


  • Cheap Protection- this is a good compromise between cost and effectiveness

  • This does not kill your Theda like just buying "insurance"

  • This can also give your condor spread a profit window or “mouse ear” on the profit and loss graph.


  • Protection is limited

How to:

Focus on Protection- options purchased must be less out of the money than your short options
Sometimes it’s a good Idea to buy the cheapest spread, but buy more of them…

Here is a brief graphic example:

  • We are using the SPY. The current price is about 138.20
  • We are about 56 days from expiration
  • The deltas we are selling are around 10
  • We are receiving a credit up front of about $880
  • Our margin requirement is $8000
  • We are assuming that the volatility will remain the same
  • Say our plan is to get $440
  • Maybe we don't wont to lose more than $500
  • Our first adjustment would be when we are down somewhere around $165 to $250

To build this iron condor spread:

Sold 40 Jun 12 149 calls
Purchased 40 Jun 12 151 calls
Sold 40 Jun 12 124 puts
Purchased 40 Jun 12 122 puts

Here is a graph of our position when we first placed the trade

Here are our greeks when we first put the position on:

Delta = -2.4
Gamma = -37.8
Theta = 19.5
Vega = -156

All I'm going to do with the simulation is advance 5 days forward and move SPY's price from 138.20 to 141.05. Here are our greeks again before any adjustment:

Delta = -125.8
Gamma = -48
Theta = 24
Vega = -196

For the adjustment, all I'm going to do:

Sell 10 Jun 12 149 calls
Purchase 10 Jun 12 147 calls

Now my total iron condor spread position looks like this:

Sold 50 Jun 12 149 calls
Purchased 40 Jun 12 151 calls
Purchased 10 Jun 12 147 calls
Sold 40 Jun 12 124 puts
Purchased 40 Jun 12 122 puts

Take a look at the graph after the adjustment.

Now take a look at our new greeks:

Delta = -50
Gamma = -35.9
Theta = 17.65
Vega = -151

See how we cut the delta down? This is cutting our price risk. We could have cut the delta to any level we wanted.

However, these spreads are not free. (you need to keep capital in reserve to perform adjustments)

What ever you spend on an adjustment, comes right off the iron condor spread potential profit at expiration (good thing we are only trying to collect 50% or less).

The last Adjustment Is To Roll
The Iron Condor Spread

This is the adjustment most people are familiar with. It is much easier to roll to the down side than the up side.

How to "roll down"

Let's say the market is falling. After objectively looking at your adjustment options you decide to roll your iron condor spread.

First you "dump" the call side. You will make a profit on that vertical spread. Then you resell the spread at higher option delta's. You will be take in a credit when you do this.

Next buy back your Put spread. You will be taking a loss on this side of the iron condor spread. It will likely be higher than the profit you took on the call side.

Next resell the puts at a lower strike price. These strike prices will have lower deltas.

Rolling Down Is "Easier" Than Rolling Up

If the market is falling that means that volatility is likely increasing for all options. This means you should get decent premiums when your resale your calls and puts. If the the price reverses after the adjustment, the drop in the volatility will benefit your position.

Rolling up is different:

Volatility is likely falling. If your iron condor spread is in trouble, it is due to price action alone (remember a drop in volatility will help your iron condor spread position). If you decide to roll in this case, the premium you receive will be low. You will be selling options when the price is cheap.

In this case you must consider what will happen if there is a sudden reversal. The increase in volatility will hurt your position. Be careful where you place your puts. Be sure to "hide" them behind some support. Price risk could become a real threat.

Why Not Use Rolling As Your Only Adjustment?

It could work. It certainly would be high stress investing. In my view it goes back to the issue of control. This idea was discussed in the income investment theory page .

Let's say the market starts moving and you are down 50% of the trades margin requirement. This will be a much bigger loss than any possible credit you will receive at expiration.

In fact, if you closed out the trade now for a loss, it would take months for you to recoup the losses. This takes the option of "taking a small loss" and sitting on the side lines off the table.

In My View You Married That Trade!

Sure, you could just keep rolling the iron condor spread if things get nasty. In fact, you have to! You will have no other choice.

In my view, it's better to work to keep losses small. This gives you the option to enter and exit trades when you see fit. Don't allow the market to dictate your trading. Make sure you call the shots!

As I mentioned earlier, I'll be updating this list with examples in the future. That being said, if you're new to option trading, the only way your going to understand it is to DO IT, Practice!!

You will start to "see" it after a few trades. Then you will get better. Remember, ask yourself: "what if the market makes a one SD or two SD move against me?" Will it blow past my max loss point? If so, consider cutting your deltas.

SD = Standard Deviation

The first time you make an adjustment it can be nerve racking. It gets easier. My advice is to make your first adjustments while paper trading.

When you feel comfortable with the basics of iron condor spread adjustments, the next step is to push your comfort zone. Check out this page on how to use a virtual account to paper trade options.

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