If you have been attempting iron condors on the Russell 2000 index, then you may be feeling some pain lately, in the form of lost money.  Iron condors can do very well when the underlying index trades within a smooth and pre-determined channel.  Take a look at the Russell 2000 over the last year, and notice two distinct environments - a friendly iron condor environment and a potentially fatal iron condor environment.

There are many iron condor trade alert services that promise big monthly gains with iron condors.  And I’ve seen some make claims that iron condors are big money makers with only 5 minutes of work per week.  In a friendly iron condor environment that may be the case, but if you are not prepared for the unfriendly iron condor environments (Hint:  NOW!), then you probably should just stay away altogether.  Unfriendly iron condor environments can be navigated through successfully, but they are tricky and require knowledge and planning - prior to the unfriendly environment striking.


In the latest issue of SFO, John Sarkett interviewed Dan Harvey, considered the “Supertrader of Index Condors”.  Dan Sheridan of Sheridan mentoring is also mentioned in the article.  The article is freely available and highly recommended for any iron condor trader.  In the article, Dan Harvey outlines his condor trading rules and guidelines:

  • Place your short strikes correctly with low deltas of between five to seven
  • Watch the current psychology of the market
  • Study position greeks, charts and graphs every night
  • Make timely adjustments when necessary
  • If you stay in the iron condor trade during expiration week, then make sure you are 2.5 to 3 standard deviations out of the money to avoid delta and gamma risk
  • Optionally, place contingent orders to protect against unpleasant surprises

Dan refers to three alternative adjustments to make to iron condors entering undesirable territories, including:

  1. Mickey Mouse ear - an example would be a long put debit spread near the lower limit of the original condor channel.
  2. Embedded calendar - Dan mentions adding an embedded calendar two standard deviations out of the money, and either taking profit and repositioning further out on a continuation movement, or stopping out for a loss on a reversal.
  3. Mighty Mouse ear - This adjustment is more expensive than the mighty mouse ear or the embedded calendar.  It refers to buying additional puts two to three strikes in front of the short strike.

Iron condors are great when they work, but you must be prepared for the potential losses, and learn the skills necessary to adjust and steer clear from trouble.  In addition to reading the entire SFO article, I’d also recommend purchasing the following book on option trading adjustments.

The Option Trader Handbook: Strategies and Trade Adjustments (Wiley Trading)
The Option Trader Handbook: Strategies and Trade Adjustments (Wiley Trading) by George Jabbour