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Research Specials LIVE

Return on Capital for Varying Width 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.

Narrow iron condors have a high return on capital but very low historical performance. In this piece we explore the differences in potential and realized ROC for varying width iron condors.

The Study:
  • SPY
  • 45 Days to Expiration
  • 2005 – Present
  • Sold 20 Delta Iron Condors with Varying Widths of Wings: $1, $2, $5, $10, $20
  • Recorded Average Potential ROC vs. Actual ROC

The average potential ROC for narrow iron condors is around 51%. However, in practice, the realized ROC is only 0.50%! The wider we set our wings, the more closely realized ROC resembles potential ROC. Additionally, the less we trade, the greater variation in realized ROC from potential ROC. One way we can improve our actual (realized) Return on Capital is to increase our number of occurrences and widen the wings of our iron condors.

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