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  • Iron Condor Question 1

    August 28, 2009 by  
    Filed under Iron Condors, Options

    Q: When entering a Iron condor, aren’t you at risk of being put a stock or forced to buy a stock if the underlying breaks your strike. Can this be avoided by simply trading calendar spreads because you are in effect short & long the outer month at the same time. I’m just worried about being put a stock after a huge move and not having the money in the account to do so.

    A: Once one side of your Iron Condor is past your break even I would either roll it up or down (adjust) or get out of the trade altogether.

    Whether you get out or adjust is a matter of how you think market will move over the course of your trade.

    You’re not in much danger of those options being exercised UNLESS:

    1) they have less than .25 cents of extrinsic value (EV) left in them and
    2) the company pays a dividend and the ex-div date is coming soon

    Generally if the option is ‘out-of’ or ‘at-the-money’ it will NOT be exercised because there’s too much time value left in the option.

    If it goes deep ‘in-the-money’ and has less then .25 cents of EV it could be exercised at any time.

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