When trading an Iron Condor, we can mimic the risk of a wider Iron Condor with a larger quantity of tighter Iron Condors. In this segment of Market Measures, we compare selling one wider Iron Condor with multiple tighter Iron Condors that equate to the same risk.Study
- S&P 500 (SPY), 2005 to Present
- Using 45 DTE options, sold
- Short 30 options & Long $6-wide wings
- Short 30 Δ options & Long $3-wide wings (x2)
- Short 30 Δ options & Long $2-wide wings (x3)
- trades at 50% of max profit
- Since Iron Condors have a defined amount of risk, we can reduce the spread width and increase the size to equate the risk while increasing the credit.
- Although these equate to the same risk, the tighter Iron Condor performs worse because it has max loss reached more often than the wider Iron Condor.