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Rolling | Defined Risk

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Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

This segment features a discussion about defined risk trades and the advantage or disadvantage of rolling the tested side of an Iron Condor. This is especially important information for traders with smaller accounts.

Both risk and the amount of buying power needed for a trade are reduced in a defined risk trade. We usually will look to roll the untested side of a Strangle closer to the money. This allows us to collect a larger amount of credit and extend our breakeven points. Does the same logic hold when rolling Iron Condors?

Iron condors have long options associated with them to define the risk of the trade so it can be difficult to roll for an overall credit. The long option’s offsetting cost reduces the overall credit and the additional leg increases the commission paid. Knowing this, does it still make sense to roll when one strike is tested or is it better to leave these trades alone and rely on our selected probabilities?

A study was conducted from 2013 to the present using the SPY (S&P 500 ETF). We sold a 2 point wide Iron Condor with the short strike at a 1 standard deviation, using the options closest to 45 days to expiration (DTE). On the first of each month we rolled the tested spread out to the next monthly expiration when the short strike had been breached.

A table was displayed of the 1 standard deviation wide Iron Condor with no adjustments as well as the 1 standard deviation wide Iron Condor that was rolled out. The table showed the P/L, percentage of profitable trades and average credit.

Watch this segment of "tasty BITES" with Tom Sosnoff and Tony Battista for the takeaways and the results of the study to see if rolling a defined risk trade (Iron Condor) is a good idea.

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