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Benefits of Wide Iron Condors

Market Measures

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An iron condor is a defined risk, neutral strategy that profits from high implied volatility and a volatility contraction. Before placing an Iron Condor, we need to decide which strikes to sell and how wide to set the wings of the trade. The wider the wings, the greater the credit and the greater this risk. In this study the Research Team investigates the performance characteristics of varying width iron condors.

The Study:
  • SPY
  • 45 Days to expiration
  • 2005 – Present
  • 20 delta Iron Condors with Varying Widths:
    • 1, 2, 3, 5, Wide
  • Compared:
    • Avg. P/L, Win Rate, BPR, ROC & Cumulative Performance
Results:

Narrow iron condors have historically been a tough trade with very small average P/L and ROC. However, as we widen the wings we see increased performance that begins to mimic that of the short strangle. Even when we control for the buying power reduction, wider iron condors tend to provide a greater cumulative P/L and lower portfolio volatility than their narrow counterparts.

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