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Strategies for IRAAdding Theta Decay to Your IRA | Mar 8, 2017
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    Strategies for IRAAdding Theta Decay to Your IRAMar 8, 2017

    Tom starts the segment rhyming “decay” with “IRA,” which he thought was more amusing than Tony did. The conversation today is all about optimizing daily P/L income for IRA traders looking to increase their long theta. The two strategies that are front and center for today’s talk are the iron condor and iron fly in the S&P 500 ETF (SPY).

    We compared the current theta of three specific dynamic, defined-risk short premium trades and saw that the iron condor actually has the greatest initial theta despite it having the smallest credit received. Tom remarks that this is because out-the-money options lose their value more quickly initially than those that are at-the-money, and so the iron condor profits pop out faster than the iron fly. This is why iron flies are used so often for short-term plays since the extrinsic comes out so quickly near expiration.

    Finally, Tom gets to some historical results of the three trades that show the iron fly having the larger credit, but the iron condor having the larger daily P/L on average. Check out the video above for more details.

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