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Implied volatility (IV) was dropping throughout the morning Wednesday, and the expected move at the open was just 30 points.
That’s the kind of environment I look for when I put on an iron condor: tight range, muted expectations and conditions that favor premium sellers.
I sold the $6,885/$6,880 SPX put spread and the $6,950/$6,955 call spread. My methodology is simple: I go one strike beyond the expected move to create a higher-probability setup.
The risk-reward profile was $100 max profit per contract with $400 max risk — a 1:4 reward-to-risk ratio. That works well if the market stays inside the range.
The problem was the market moved beyond the expected move.
SPX opened around $6,915 and the expected move projected roughly $6,945. Going one strike out was supposed to give me a buffer, but bullish momentum was stronger than I anticipated.
When a trade like this starts moving against you, there are repair strategies. I could have sold another put spread around $6,938 to collect additional premium — roughly $0.40.
But that would have brought in $40 in credit for about $460 in additional risk. The risk dynamics get ugly fast.
My Profit Panel co-host, Geof Smith, suggested a more flexible structure. He would sell a put spread first and, if price pushed into resistance, then sell the call spread to complete the iron condor. That approach lets price action guide timing instead of forcing both sides at once.
When Iron Condors Work — and When They Don’t
Iron condors work best on tight expected-move days when the market isn’t moving much. When IV contracts during the day, even better — you want option prices declining.
But when unexpected momentum hits — like it did Wednesday after the State of the Union on Tuesday — you’re fighting the tape. The setup was clean, but conditions moved faster than the structure could adapt.
My rule is simple: I don’t add new trades to salvage losing ones. I close it out and move on. No emotion, no digging deeper and no trying to manufacture a win from a broken setup.
Some traders adjust aggressively and that’s fine if it fits their style. It doesn’t fit mine.
The takeaway isn’t that iron condors are flawed. It’s that they require the right environment: Low expected move, contracting IV and a market more likely to chop than trend.
When those conditions line up, they can be a clean, defined-risk way to collect premium. When they don’t, I manage risk and move on.
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To better trading,
Alex Reid
WealthPin
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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