Interview with Philip Budwick

In this excerpt from the interview Mark Wolfinger published on Options for Rookies with Phil Budwick, mostly talking about the new edition of his book The Option Trader Handbook: Strategies and Trade Adjustments (Wiley Trading) (Amazon link), he discusses trading condors.

MW: I discuss iron condors more often than any other strategy in this blog.  Do you have
any comments specific to adjusting iron condors – perhaps deciding when to
adjust?  Or perhaps a favored method?


PB: As you know I was a big trader of Iron Condors for several
years when the VIX was in the 10 – 20 range and did them monthly with very good
success until Aug 2007 when the whole market volatility environment changed
dramatically.  When I did Iron Condors
exclusively from 2003 – 2007 I tried to make strike selections where adjusting
was not something I would have to consider often.  However, as you know markets will
occasionally make large moves and threaten the short strikes.  My experience has been that adjustments for
Iron Condors are quite limited and most either eat into your credit
significantly, or increase risk.

The only adjustment I really considered was based on time to
expiration. One common adjustment “regime”
I would use if the Put side was threatened, for example, was to close the put
spread and roll it down and close the calls and roll them down as well as long
as I still maintained a total net credit.
The goal was to simply give me more space in the time remaining for my
options to expire worthless or get to a point where I could close for a
profit. I only considered this though if
time to expiration was short. If there
was 4 weeks left to expiration then the adjustment would still leave me plenty
of time for the position to move against me while reducing my credit. However if there was 1-2 weeks and I felt the
market had a good chance of moving back away from my threatened strike then I
would do the adjustment to sort of buy me more cushion to wait out the
market.

If the market kept coming at me, I would have to accept the
loss and bail. I found in my experience
that you really only have one adjustment in an IC to give you some cushion, and
if market still will not cooperate then you get out and look for next
opportunity.

Thanks Phil. I enjoyed this conversation and am pleased to have you as my first interview.