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Hidden Risk of Narrow Iron Condors

Market Measures

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An intuitive but misleading belief about iron condors is that the wider the width, the larger the maximum losses and the larger the risk. However, instead of focusing on the absolute value of potential loss, other risk measurements -- like the percentage of actual losses with regard to potential losses and the frequency of reaching max loss at expiration -- are worthy of better attention.

Our study on SPY 30 delta iron condors shows that wider iron condors actually present less risk, as both their percentage of actual losses regarding potential losses and their frequency of reaching max loss is lower.

For example, the actual loss is 18% of the potential loss for $20 width and 83% for $1 width. Also, the frequency reaching max loss is 0.07% for $20 width and 61% for $1 width.

Tune in as Tom and Tony interpret the results in depth!

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