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Iron condor adjustments are sometimes necessary when you need to defend a trade that’s moved against you. In this video, you’ll learn the iron condor adjustment strategy of “rolling down” the short call spreads.
If the stock price falls quickly after selling an iron condor, the position will likely have a loss, and the directional exposure (position delta) will grow positive.
In response to the adverse stock price movement, a trader can roll down the short call spreads to defend the trade. To roll down the short call spreads, a trader must buy back the old call spreads and sell new call spreads using lower strike prices.
By rolling down the short call spreads, a trader will collect more option premium, which will reduce the maximum loss potential and increase the maximum profit potential. However, the range of maximum profitability gets smaller, which makes achieving maximum profit a lower probability occurrence.
Near the end of this video, we cover a more realistic and visual example by analyzing a recent Facebook (FB) iron condor, and assess the position’s risk and reward potential before and after the iron condor adjustment.
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