To improve capital efficiency, we can define the risk of our trades by adding wings of different widths and different underlyings in different markets accordingly.
According to the result of our study, adding wings can reduce our BPR and max loss, thus reducing risk and increase our capital efficiency.
And the wider the wings, the higher the risk. For example, for iron condors, a defined risk strategy, the BPR and max loss is higher with wider wings, which means the risk of iron condor increases with its width. And we can also manage risk by adding wings on more volatile underlyings.
Tune in as Tom and Tony explain!