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Your iron condor is being tested. What are your choices?

The stock has run at one of your short strikes. You have five choices, and three of them can end worse than the loss the condor was supposed to cap. Here is each one in dollars.

Options guide · 10-minute read · Updated 2026-10-29

What is happening right now

One of your two short strikes is in the money. The other side is nearly worthless. The position shows red because the market now prices the tested side near its full width.

Nothing is decided yet. A short strike can be in the money and the trade can still finish green, because you collected a credit on both sides. Your break-even is the short strike plus or minus the total credit, not the strike itself.

You have five choices: close it all, close the tested side, roll the untested side closer, roll the whole thing out in time, or do nothing. Three of them can end up losing more than the condor's own max loss.

New to this? Start with the iron condor explained or the map of option strategies beyond the wheel.

The trade, in numbers

(Hypothetical. An illustration, not a trade idea.)

Cobalt Mining trades at $50. Forty days out you sell a four-strike Iron condor:

• Sell the $45 put, buy the $40 put — credit $0.60
• Sell the $55 call, buy the $60 call — credit $0.60

Total credit $1.20, so $120 in your account. Both sides are $5 wide.

• Max gain: $120, if Cobalt finishes between $45 and $55.
• Max loss: (5 × 100) − 120 = $380, if it finishes below $40 or above $60.
• Break-evens: $43.80 and $56.20 ($45 − $1.20 and $55 + $1.20).

Thirty days later, with 10 days left, Cobalt has run to $56 on a takeover rumour. The call side is tested.

Prices now: the $55 call is $2.20, the $60 call is $0.40, so the call spread is worth $1.80. The $45 put is $0.15 and the $40 put is $0.05, so the put spread is worth $0.10. The whole condor costs $1.90, or $190, to buy back.

Notice this before you act. At $56 the stock is still inside the upper break-even of $56.20. At expiry right there, the short $55 call costs $100 of intrinsic value against $120 of credit, leaving +$20. Tested is not losing.

The five choices, priced out

Every row checked:

• Row 1. You collected $120 and pay $190. That is −$70, locked, whatever Cobalt does next.
• Row 2. The call spread costs $180 to close against $60 collected, so the call side realises −$120. The put spread stays open with its $60 credit; if it expires worthless the trade is −$120 + $60 = −$60. But if Cobalt crashes under $40, the put side loses its full $500 against $60, and the total is −$120 − $440 = −$560. That is $180 worse than the condor's own max loss.
• Row 3. Buy back the $40/$45 put spread for $0.10, so that side realises +$60 − $10 = +$50. Sell a new $45/$50 put spread for $0.70, another +$70. With the call side's $60 still live you hold $180 of credit against a $5-wide loss either way, so max loss is 500 − 180 = $320. The price: your winning range is now $50 to $55.
• Row 4. Close the current condor for $190 and open the same four strikes next month for $230. Net +$40 today. Credit in hand is $120 + $40 = $160, so max loss is 500 − 160 = $340, bought with 40 more days of exposure.
• Row 5. Do nothing. Above $60 or below $40 the tested spread pays out its full $500 against $120 of credit: −$380.

Which one most sellers take

Most sellers close the whole position (row 1) or roll the untested side up (row 3). Closing takes a small known loss and frees the capital; rolling collects real extra credit, which genuinely lowers the max loss. When each is wrong:

• Closing, if you are only doing it because the red number feels bad. At $56 the trade was still above break-even. Paying $190 to escape a position worth +$20 is paying for comfort.
• Rolling the untested side, when it leaves almost no gap between the strikes. Roll the put side to $53/$48 while short a $55 call and your winning range is $53 to $55. That is a pin bet, not a wide trade.
• Closing one side only (row 2), almost always. It is the one choice that can end worse than max loss, and it does it by removing the leg that was already winning.

The roll that only delayed it

Say the reader takes row 4 and rolls the whole condor out a month. (Still the same hypothetical.)

The rumour turns out to be real. Next month Cobalt closes at $62.

• Credit collected across both condors: $120 + $40 = $160.
• The $55/$60 call spread is fully in the money: the $55 call is worth $7.00, the $60 call is worth $2.00, so the spread settles at −$500.
• The put side expires worthless.
• Final result: $160 − $500 = −$340.

Second way to the same number: max loss on a $5-wide spread with $160 of total credit is 500 − 160 = $340. The two agree.

Now compare. Closing on the day it was tested cost −$70. Rolling out cost −$340. The roll bought 40 days and charged $270 for them.

A fresh $40 credit for $340 of risk, in a stock with a live takeover story, is not a trade anyone opens on purpose.

The rule to write before the next one

Decide the exit when you open the condor, while no money is on the line. Any of these works, as long as it is written down:

• Close the whole condor when the short strike is touched.
• Close when the position's loss reaches the credit collected, or twice it.
• Close at a set number of days to expiry, tested or not, so that pin risk and Assignment never enter the trade.

Plan it before you trade with the iron condor calculator, which gives both break-evens and the max loss from four strikes, or draw an adjustment in the options strategy payoff calculator.

One practical point: multi-leg spreads need a higher approval level than the covered calls and cash-secured puts of the wheel strategy, and in Canada most brokers will not allow a four-leg condor in a TFSA or RRSP at all. Check your permissions before planning an adjustment you cannot place.

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