Market Measures

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Iron Condor Loss Potential

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.

An iron condor is a defined risk, neutral strategy that takes advantage of high implied volatility. By adjusting the long options, or wings of the iron condor, we can alter the risk-reward profile of the strategy. Since wider iron condors require a greater buying power, they are often perceived to be riskier, but how often do they realize that max loss?

The Study:
  • SPY
  • 2005 – Present
  • 45 DTE
  • 30 Delta Iron Condors Held to Expiration
  • Varying Widths of the Wings:
    • 1, 3, 5, 10, 20
Results:

When trading narrow spreads there is a high likelihood of reaching max loss at expiration. Although it takes more buying power to trader wider spreads, the likelihood of reaching that max loss at expiration is very low. Tune in to see the numbers!

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