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Going $1 Wide?

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.

In an Iron Condor the width of wings determines how much risk we take on. How has taking the minimum amount of risk worked in this trade? Tune in to hear Tom and Tony discuss going $1 wide!

In last week’s Market Measure, “Looking for a Bullseye”, we looked at the odds of pinning a tight Iron Fly with wings purchased one dollar wide. What about Iron Condors? Is there ever a time to go one dollar wide?

When we place wings $1 wide, we have a limited profit window and our breakevens are basically our short strike. For this study, we looked at selling 30 and 16 Delta Iron Condors and purchasing wings $1 wide in SPY from 2005 to present, testing in normal and high IV Rank environments.

One of the problems when we limit our risk to $1 is that the amount of premium we can potentially collect is very low. In the 30 and 16 delta, (on average) we collected $54 and $27 dollars. When we collect this little premium, it’s easy for large outlier moves to wipe out our profits. Be sure to tune in to hear Tom and Tony break down going $1 wide!

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