How to Improve Your Fills When Trading Iron Condors

If you’ve been trading options and have recently started trading iron condors there may be instances in which your iron condors are either failing to fill or receiving poor fills from your broker. There are many reasons why this could be happening that you aren’t aware of. It’s important to know what kind of factors can impact your iron condor fills so you can avoid execution slippage and receive optimal fills. In this article, we will take a look at why your iron condors may not be getting filled and also how to improve your fills when trading iron condors.

How An Iron Condor Works

Before we discuss how to improve your fills when trading iron condors, it’s important to make sure you fully understand how an iron condor is constructed. An iron condor consists of four options contracts with two separate wings.

Iron condor construction

Wing 1 ( Put Side )

  • Sell 1 OTM put
  • Buy 1 OTM put

Wing 2 (Call Side )

  • Sell 1 OTM call
  • Buy 1 OTM call

Once you put on an iron condor you will receive a net credit. The max profit you can make from an iron condor is the premium you receive from writing the option. As such, you want the price of the stock to remain below the call spread (wing 2) and above the put spread (wing 1) by the expiration.

Why Your Iron Condor May Be Failing to Fill

There are many different factors that may be preventing your iron condor from filling. Let’s take a look at some of them below.

  • The stock you are trading has poor options liquidity. If you’re attempting to trade a stock that is thinly traded it may have poor options liquidity which can prevent your iron condor from filling.
  • The distance on your iron condor wings may be too wide. If you’re attempting to put on a wide spread on your iron condor wings, your broker may not have the liquidity to fill it. You should make sure that the distance between your iron condors strike prices isn’t too wide.
  • Your iron condor may be too far out of the money. The further you go out of the money when trading iron condors, the more that liquidity gets reduced at further out of the money strikes. Majority of options volume takes place at-the-money and if you attempt to do an iron condor that is too far out of the money, there may not be enough liquidity to fill it.
  • You are attempting to trade an expiration that is too far out. The further out you go in expiration for your iron condor, the worse the liquidity tends to get. If you go more than 3 months out on an expiration, the options will usually have wider bid/ask spreads and poor liquidity.

Why You May Be Receiving Poor Execution When Trading Iron Condors

When trading stock and options, it’s important that you understand how different order types work. Using the wrong order type can cause your trades to experience poor execution. Below are some of the reasons why you may be receiving poor execution when trading iron condors.

  • Using market orders. One of the main reasons traders experience poor execution when trading iron condors is because they are using market orders. Market orders are subject to execution slippage. If you use market orders, you will naturally receive worse fills on your options trades.   
  • Trading options during very volatile periods. If you are attempting to get into an iron condor when prices are moving rapidly, there is a higher probability that you will experience poor execution.   
  • Trading options immediately when the market opens. Options liquidity can be very erratic the first 30 minutes after the market opens up. The bid/ask spread tends to be wider during market open so it’s recommended that you wait at least 30 minutes after the market opens to put on a trade.
  • You may be using the wrong stock trading broker. If you’re using retail trading brokers like Robinhood or Webull, they will typically have worse spreads because they offer commission-free trading. They have to bake the trading costs into the spread in order to give you commission-free trading.

How to Improve Your Iron Condor Fills

There are several different ways in which you can improve your iron condor fills. Let’s check them out.

  • Use limit orders. One of the easiest ways to ensure that you aren’t getting slipped on your options trades is to make sure that you are using limit orders. Limit orders guarantee that you will receive the price you want, but do not guarantee execution. 
  • Put on each wing of the iron condor separately. This is probably one of the best ways to ensure your iron condor receives better fills. Since an iron condor is 4-leg combination trade, it may require your broker additional time to find liquidity to execute it. Instead of putting on an iron condor all at once, put on each spread separately. This allows your broker to give you tighter execution on a less complex trade.
  • Trade stocks that have a good options market. Focus on trading stocks that have a liquid options market. Stocks that have a healthy options market will have lower spreads, better volumes, and more liquidity. This will help you avoid execution slippage and get better fills.
  • Avoid putting on trades right when the market opens or closes. As previously mentioned, spreads tend to be the highest immediately after the market opens up. You should avoid trading options immediately after the market opens or right before the market closes.

Bottom Line

If you want to improve the fills on your iron condors, it’s very important to consider the factors above that can impact their execution. Don’t be in a hurry to put on a trade. Wait for the right time when volatility has slowed down, spreads have become tighter, and trade stocks that have a healthy options market.

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