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Directional Risk for Iron Condors

Research Specials LIVE

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

In a perfect world, we would collect theta from our positions with no directional risk. However, this is rarely the case, and most of the time, directional risk is a big component of our realized P/L.

We find that iron condors have a lot more realized risk and less realized P/L near expiration, making the case to manage early. Additionally, we find that the pure premium decay rate is the same for any width iron condors and strangles of the same delta.

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