As I previously noted in my rolling tested iron condors posts, there are several ways to deal with a tested side, including closing the entire side out for a loss, rolling the tested side out for duration at the same strikes as the original setup and selling an oppositional credit spread against the rolled out tested side as you would ordinarily do (with the short strike at the 1 SD             , the long strike a few strikes out from that), and rolling to an iron butterfly or iron fly.

There is also another option: rolling to a naked short strangle.

In my previous posts, I used my short call side in a SPY             iron condor of 198/201 as an example. Currently, the long call at 201 is in profit. I would close that out and lock in the profit realized from the substantial up move experienced here, leaving me with a naked 198 short call, which I would proceed to roll out for both credit and duration.

I will treat the 198 short call as I would were I to have set up a short strangle in the first instance. Studies conducted by TastyTrade on short strangles advise rolling the naked option out to the exact same strike price as the original option (or as near to it as practicable) and then sell an oppositional naked against the rolled out option. Initially, this seemed somewhat counterintuitive to me, but it is due in no small part to the nature of options, not the least of which is theta and theta decay. But that's a long, mathematical story ... .

In this particular case, I can currently get a 1.08 credit if I roll the 198 short call to the expiry nearest 45 DTE             , which would be the December 4th weekly. I would then proceed to sell a put at the 1 SD             for that expiry, which would be about at 197, and for which I would get about a 1.20 in credit, resulting in a 197/198 short strangle (which is very nearly a short straddle, where the price of the short call and short put are at the same strike).

After that, I proceed to manage the trade, keeping track of how much credit I've collected, etc. so that I know what it will take to get me back to scratch (I've got a little spreadsheet for that). Managing rolled trades is a little bit more of a judgment call sort of thing, and I frequently do not take sides off at 50% max, but rather, watch the trade and look to take off a side at or near max profit toward the end of expiration, and then roll again if I have to, with getting back to scratch always in the back of my mind.

The downside to rolling out to a short strangle is that it will tie up more buying power than the iron condor/iron fly while you attempt to get back to scratch. The upside is that you get more credit for rolling than you would with rolling to another "skinny" iron condor or iron fly (for which you will have to pay a debit of .27 in the above example), and short strangles are just generally easier to manage

Naturally, rolling to a naked short strangle is not an option if you are unable to trade nakeds in your account ... .
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