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One Third the Width

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Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

When selling iron condors, we like to collect a credit that is ⅓ the width of the strikes. So how big exactly are these wing widths?

When looking at 25 delta options in SPY, we find that $5 wide wings let us collect about $2 in credit (⅓ of the wing width). However, this wing width can change as implied volatility, price, and DTE change. The $5 wing width also has a decent tradeoff between risk and reward.

When comparing the $5 wing width to the $10 wing width, we see that the $5 wing width has lower risk but still collects a good amount of theta. Therefore, we like to collect a credit equal to ⅓ the width of the wings because we can collect a sufficient amount of theta while mitigating potential losses.

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