Market Measures

Monday – Friday | 9:00 – 9:20a CT

Iron Condors | Defining Risks

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.

One of our favorite strategies is to sell one standard deviation Strangles. It is a very high probability trade, but it does have undefined risk. We can define the risk by buying “wings” and turning the trade into a short Iron Condor. How far out should these wings be? This segment discusses the costs and benefits of using different widths when trading Iron Condors.

A study was conducted using SPY (S&P 500 ETF) from 2005 to present was displayed. We used options closest to 45 days to expiration (DTE) and held them to expiration. We sold 1 standard deviation strangles and bought far out-of-the-money (OTM) wings. We then compared a short Strangle in SPY to Iron Condors with varying widths.

A table of the results was displayed. The table compared the percentage profitable at expiration, average P/L and average return on capital (ROC) of a short strangle to Iron Condors with varying widths. The optimal widths for P/L and ROC were shown and Tom and Tony discussed the results. A graph comparing the short strangle to the short Iron Condors was displayed.

A second study was conducted using SPY (S&P 500 ETF) from 2005 to present was displayed. We used options closest to 45 days to expiration (DTE) and this time managed at 50% of max profit. We sold 1 standard deviation strangles and bought far out-of-the-money (OTM) wings. Again, we compared a short Strangle to Iron Condors with varying widths.

A table of the results from the second study was displayed. The table compared the percentage of profitable trades, average P/L, duration and average return on capital (ROC) of a short Strangle managed at 50% profit to Iron Condors with varying widths. All trades were managed at 50% of max profit. Tom and Tony provided some context for the results and then discussed the takeaways.

Watch this segment of “Market Measures” with Tom Sosnoff and Tony Battista for the valuable takeaways and the detailed study results comparing the risk/reward matrix of short strangles to wide iron condors carried to expiration, and also managed at 50% of max profit.

Market Measures More installments

See All »

Latest tastytrade Videos As of December 07

Most Shared From the last 30 days