What
should you do when the underlying moves against an iron condor position
you have open? (For example, if you’re a member, you may have noticed
that one of our DIA trades for May expiration is looking threatened by
the recent price action in the index.) Any time this situation arises,
people will always write in to ask about how they can “adjust” or “fix”
the trade if the market continues to be uncooperative. It’s an
understandable impulse to want to take action when things don’t go your
way, but it’s also important to guard against the danger of overtrading.
Our answer here is the same as the answer we always give: there is
no magic solution for “fixing” trades that move against you. Sure,
there are actions that you can take to reduce risk or minimize losses,
but those actions come with their own inherent risks and downsides, and
any added risks need to be recognized as such.
1. Allocation, allocation, allocation
Our official position is always that the best way to guard against the pain of a losing trade is to allocate conservatively.
To read the rest of this article, just click on over to our options trading blog...