Tested side - GetProfitable

In a strangle or iron-condor the market rarely threatens both sides. The tested side is where the loss is accumulating; the untested side has collected most of its premium and is doing nothing useful.

Defensive management usually means rolling the untested side closer to the money to collect more credit, which widens the break-even on the tested side without adding buying-power-reduction. The cost is that you have narrowed your profitable range and converted a neutral position into a directional one.

Example: short the XYZ $45 put and $55 call for $1.70. XYZ falls to $46.50. The put is now $2.10 (tested) and the call is $0.15 (untested). Rolling the call down to $52.50 for an extra $0.45 lowers break-even from $43.30 to $42.85 — real help, and now you are short a much tighter range.

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.

Iron condor: payoff at expiry. Four strikes: the 2 credit is kept in full while the price finishes between 95 and 105, and is lost gradually outside the 93 and 107 breakevens. The bought 90 put and 110 call stop the loss at 3 on either wing.