Research Specials LIVE

IV Based Strategy Selection

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.

As implied volatility (IV) increases, the difference in credit we receive for strangles vs iron condors is larger. So does this mean that it makes sense to trade iron condors in low IV environments since they have less risk than strangles?

Study
  • SPY, Short 20Δ
  • 45 Days to Expiration
  • Held to Expiration
  • Strangle, $1 Wide, $5 Wide, $10 Wide IC
  • Compared Risk Adjusted P&L
    • P&L / Sd. of P&L
  • Low IV (VIX < 18) High IV (VIX >= 18)

We find that in low IV environments, the $10 wide iron condor actually outperformed the strangle in terms of risk adjusted profits. In high IV environments, the strangle outperformed in terms of risk adjusted return because the strangle collects much more in high IV.

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