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IV Based Strategy Selection: Dyanmic Iron Condors

Market Measures

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In a previous Market Measure titled “IV Based Strategy Selection: Strangles and Iron Condors” we looked at how implied volatility impacts static Iron Condors and their risk adjusted return profiles relative to strangles.

In this piece the Research Team builds on that study to incorporate dynamic Iron Condors which set their widths based on differences in Delta and scale with the underlying price.

The Study:
  • SPY
  • Short 20 Delta
  • 45 Days to Expiration
  • Held to Expiration
  • 10 Delta Wide, 5 Delta Wide, 3 Delta Wide Iron Condors
  • Compared Trade Credit as a Percent of the Underlying Price with Varying VIX levels
  • Compared Risk Adjusted P&L:
    • P&L / Sd. of P&L
Results:

The results for Dynamic Iron Condors are very similar to those of Static Iron Condors. Just like Static Iron Condors, the credit as a percent of the underlying has a direct relationship with Implied Volatility.

Additionally, the differences between trade credits is narrower when Implied Volatility is low and widens as Implied Volatility increases. Also, as expected, the risk adjusted return profile of Iron Condors increases as you widen the wings.

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