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Market Measures

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Allocating Iron Condors vs Strangles

Market Measures

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

By selling options, we have a choice of going undefined risk, or defining our risk. What are the differences in our returns, risk, and win rates when we define our risk compared to when we leave it undefined.

Study
  • SPY, 2005 - present
  • Allocate 30% portfolio to SPY derivatives, 45 days to expiration, manage at 21 days
  • Strategy 1:
    • Always invest in strangles (10∆, 20∆, 30∆)
  • Strategy 2:
    • Always invest in iron condors (10∆, 20∆, 30∆) with $10 wide wings.

We find that undefined risk positions have more risk in general, but carry much higher profits, returns, and probability of profit than iron condors or defined risk strategies.

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