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Market Measures

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Iron Condor Wing Efficiency

Market Measures

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Iron condors can be made with different widths, meaning that the long strikes can be close to or far from the short strikes. Depending on how far they are from the short strikes determines the risk-reward profile of the iron condor. So what is the risk-reward profile that tastytrade shoots for?

Study
  • SPY, 2005-present
  • 45 days to expiration
  • 30 delta short put and call
  • Compared credit received and buying power for varying long wings:
    • 20, 16, 10, 5, and 1 delta long put and call

We find that we usually trade around the long 16 delta put and call with the 30 delta short strikes because that provides roughly ⅓ the width of iron condor in credit as well as a decent risk-return profile that keeps buying power in check.

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