The Ultimate Guide to Rolling Iron Condors

Have an Iron Condor that is not working out?

If you’ve placed enough Iron Condor trades, then sooner or later you will be faced with a losing trade.

So how do you turn this losing trade around?

One way is by rolling your Iron Condor.

By rolling your Iron Condor, you will be extending the life of its trade to give more time for the trade to work out.

And if you rolled it correctly, you can increase the Iron Condor’s max profit and reduce its max loss!

So how do you exactly roll an Iron Condor?

And when should you roll it?

What Exactly Is Rolling?

Rolling is the simultaneous process of closing your existing trade, and opening a new trade.

And you do this in a single order so there will be no legging risk.

And you want to roll for a net credit.

Because when you roll for a net credit, you will be increasing the max profit and decreasing the max loss.

But if you roll for a net debit, it’s the opposite.

That means you will be decreasing your max profit and increasing your max loss.

That’s not what you want to do.

So the rule of thumb is only to roll when you’re able to get a net credit.

Now, when you roll Credit Spreads, you can do it in a single order.

But when you roll both the Put side and the Call side of the Iron Condor, you can’t do it in a single order.

You would need to roll one side first, then roll the other side.

That’s because there’s a maximum of four legs in a single order ticket.

When rolling both sides of the Iron Condor, that will be a total of eight legs!

Hence, it has to be done in two separate rolls.

Example of Rolling One Side of The Iron Condor

Let’s say, for example, you want to roll the Put side of your Iron Condor.

To roll, you buy back your Short Put Spread and then sell another Put Spread with a longer DTE (days to expiration).

For this example, we used the same strike.

And as you can see in the image above, we were able to get a net credit of $0.16.

So this is considered a net credit roll.

With this roll, you have effectively made your risk-to-reward ratio more favorable.

For example, if you had started off with a $1 credit of this Put side of the Iron Condor, your new max profit would now be increased to $1.16 (which is $116 per spread).

And your max risk would now be decreased from $4.00 to $3.84 (which is $384 per spread).

So you’ve improved your risk-to-reward ratio from 4:1 to 3.31:1!

Now, if you want to roll the Call side of the Iron Condor, you would do the same.

Unlike Credit Spreads, if you wish to roll both sides of the Iron Condor, you’d have to do it separately.

That’s because there’s a max limit of four legs per order ticket.

Hence, you’d need to do two separate rolls to roll an Iron Condor.

How & When To Roll An Iron Condor

Before we decide to roll an Iron Condor, we need to first identify the profit and loss zones when we first put on the Iron Condor.

As you can see in the image above, our max profit zone is anywhere within the two Short strikes.

Past the Short strikes will be where our profits will start to diminish until we break even on the trade.

And past the breakeven zone, the trade will be at a loss.

With this in mind, here are the guidelines for rolling an Iron Condor:

• Roll only when either of the Short strikes gets tested.
• AND there are less than 21 DTE.
• AND you’re able to get a net credit.

Now that we’ve identified the guidelines for rolling, here are six different scenarios that might happen when you’re trading the Iron Condor.

And for each scenario, we want to determine whether we should roll, and if so, how should we roll it.

Scenario 1: The market is within the Short strikes with more than 21 DTE left. Your Iron Condor is in a loss.

In this scenario, the market has gone down, however, it has yet to breach the Short Put Spread.

Although the market is still within the Short strikes of your Iron Condor, it’s still possible to see a loss on your Iron Condor.

That’s because it takes time for the Iron Condor to eventually hit its profit potential.

So in this scenario, do you roll?

The answer is that there is no need to roll.

That’s because the market is still well within the Short strikes so the Iron Condor is still working well at this point.

For now, there’s nothing to do but to let it work out.

Scenario 2: The market is within the Short strikes with less than 21 DTE left. Your Iron Condor is in a loss.

This scenario is similar to scenario 1 except that there are now less than 21 DTE left.

Do you roll your Iron Condor?

At this point, it’s still not necessary to roll.

The market is still inside the profit zone so it’s working well.

However, since there’s less than 21 DTE, then be prepared to roll once the market tests either side of the Short strikes.

Scenario 3: The market has just tested the Short Put strike with less than 21 DTE.

In this scenario, the market has gone down to test the Short Put strike.

Since there’s already less than 21 DTE, this is the time that you can roll if you wish to.

The first step is to roll the Short Put Spread out in time.

Usually, we want to roll to the nearest 45 DTE available.

For this roll, we usually would be able to get a credit since the market hasn’t gone far past the Short Put strike.

After rolling the Short Put Spread, the next step is the Short Call Spread.

For the Short Call Spread, there are three options:

1. Roll the Short Call Spread out in time.
2. Roll the Short Call Spread out in time and down to a lower strike price.
3. Close out the Short Call Spread leaving just the Short Put Spread.

Scenario 4: The market has just tested the Short Put strike with more than 21 DTE.

This scenario is the same as scenario 3 but there’s more than 21 DTE.

So in this case, do you roll?

Since there’s still more than 21 DTE, there’s no real need to roll.

While you could certainly still roll if you want to, the problem with rolling at this time is that you might have to roll to a much further DTE.

For example, if there’s still 40 DTE left, the next cycle to roll to could be around 60 DTE or longer.

And that would not be efficient in terms of Theta decay because Theta only picks up as it’s getting closer to expiration.

So doing nothing is certainly fine at this point because there’s still enough extrinsic value left in the Short Put to have any risk of early assignment.

There’s always a chance the market could come back up and you’d be profitable then.

Scenario 5: The market has gone far below the Short Put strike and there’s more than 21 DTE.

This scenario is the same as scenario 4 except this time the market has gone far below the Short Put strike.

In this case, should you roll?

So in this scenario, since there’s still more than 21 DTE, the action would be the same as scenario 4.

And that is to just hold on to the trade in hopes that the market comes back up.

Remember, the Iron Condor is a defined-risk strategy.

It already has an in-built “stop loss” where you have a capped max loss.

That means you can’t lose more than what you’ve set as the risk when you put on the trade.

So even if the market goes to zero, you can only lose what you’ve set as the max loss.

Therefore it’s important to not risk more than 5% – 7% per trade because there will be trades in which you could hit the max loss.

Scenario 6: The market has gone far below the Short Put strike and there’s less than 21 DTE.

This scenario is a follow-up from scenario 5.

The market has not come back up and there’s now less the 21 DTE.

In this case, we can consider rolling.

The first step would be to roll out the Short Put Spread.

However, because the Short Put Spread is now pretty deep-in-the-money (DITM), chances are that it would be for a net debit.

In order to have an overall net credit for the roll, we would need to roll the Short Call Spread for a credit that’s more than the debit of the Short Put Spread roll.

And chances are that we would need to roll the Short Call Spread out to a further expiration date, and down to the lower strike prices.

The last resort is to roll it into a Butterfly spread in order to get a net credit on the roll.