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Market Measures

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Static & Dynamic Condors

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.

When we trade iron condors, we can set our risk a few different ways. The first way is to determine the width of the wings based on a nominal amount, for example a $5 wide iron condor. This is known as a static iron condor. The second way is to determine the wing width based on the delta. For example, a 10-delta wide iron condor. This is referred to as a dynamic iron condor.

Since the width of dynamic iron condors is determined by delta, the width of the wings can change through time. In this piece, the Research Team dives into the performance and dynamism of dynamic iron condors.

The Study:
  • SPY
  • Closest to 45 DTE
  • 2005 – Present
  • Sold 20 Delta / 10 Delta Iron Condors
  • Recorded the Width of the Wings on Both Put and Call Sides
  • Recorded the Buying Power Reduction
Results:

As expected, due to the strong put skew inherent in SPY the short put spread is generally wider than the call spread. Historically, the put spread is about twice as wide as the call spread. Additionally, since the deltas scale with price the buying power reduction had increased through time as markets have increased in price. Although dynamic iron condors provide adequate returns, we prefer to trade static iron condors because of the clear defined risk & consistency when determining which wings to buy.

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