Last update: July 2021

Adjustment techniques are often overhyped. Sure, they can elevate your odds of success. And, yes, they can act as a band-aid for a bloody position. But never forget – there is always a tradeoff, an opportunity cost. I recently received a question regarding my thoughts on rolling the losing side (aka the tested side) of a suffering Iron Condor. Since this is a popular query I have received before and will continue to receive, I thought we could use it as a topic for today’s musing.

Cliffs notes: I’m not a fan of rolling up/down.

Slightly longer: It elevates your odds of success at the expense of increased risk.

The really long version:

Let’s set the table to make sure we’re on the same wavelength. Suppose we have a stock trading for $100 and we enter an Iron Condor by selling the June $85/$90 bull put and $110/$115 bear call spread for a total net credit of $1.00. The spread essentially bets that the stock will remain between $90 and $110.

Now, let’s say the stock heads higher, rising ever closer to $110. In this instance, we would say the bear call side is being tested. The bull put is the “untested” side.

One adjustment technique that traders might consider is rolling up the bear call spread. The adjustment would consist of closing the $110/$115 bear call spread at a loss, and then selling a June $115/$120 bear call spread. Note, we are remaining in the same expiration cycle. Let’s say these are the credit/debits for each part of the play.

• A. Enter June $110/$115 bear call at 50 cents. The $110 call delta was 0.15.
• B. Exit June $110/$115 bear call at $1.50 (locks-in a loss of $1.00). The $110 call delta is now 0.45.
• C. Enter June $115/$120 bear call at $0.75. The $115 call delta is 0.20

Consider the benefits of rolling.

First, you went from being short a 0.45 delta call to a 0.20 delta. That means the roll increased your probability of profit. Think of it this way; the original Iron Condor required the stock to sit between $90 and $110. Now, post-adjustment, the stock only needs to sit between $90 and $115. We’ve added $5 of room on the upper end of the profit range.

A second benefit to the roll is it provides the ability to recoup some of the loss. We closed the initial bear call at a loss of $1.00, but with the new bear call, we can gain back 75 cents. Some traders obsess about saving losing trades and having the chance at reclaiming most of the loss speaks to that motivation.

Now for the cons; the drawbacks that can draw blood and break your back.

First, rolling up is a debit adjustment. That means it costs money to deploy. As such, it adds capital and risk to your trade. For example, your original Iron Condor brought in a $1.00 credit and thus had $4.00 of risk. The roll adjustment costs 75 cents (buy the $110/$115 bear call at $1.50 and sell the $115/$120 bear call for 75 cents). That means your overall risk ramped from $4.00 to $4.75.

Second, and directly related to the first, you are now in a position to lose even more money if the stock keeps moving against you. Losing on the first bear call spread is terrible, but doubling down and suffering again on a second is arguably worse. It’s adding insult to injury.

Now, you can execute this adjustment on the bull put if prices head south. You just close the initial bull put and open up a new one in the same month using lower strike prices.

Personally, I believe the cons outweigh the pros with this tactic. That is why I didn’t include it in the Cash Flow Condors trading system. Instead, I focused on adding to the winning side. Such a gambit brings in an additional credit which reduces the overall risk while slightly increasing the profit range.

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