One of the main ways we reduce our Buying Power Reduction is through the purchase of further OTM options to define the risk. For example, if we want delta neutral exposure similar to a Strangle, we can reduce our buying power by converting the Strangle to a wide Iron Condor. If wide Iron Condors use too much buying power, we can tighten the wings.
With this reduction in Buying Power, we accept a reduction in Average P&L. Given these trade-offs and a growing account size should TastyBite accounts scale by:
- Increasing the number of contracts.
- Increase the width per contract.
Using a $1,000 allocation to Iron Condors, we see that tight Iron Condors have a greater P&L, but also a greater standard deviation of P&L. W using a $1,000 allocation, wider iron condors provide the most favorable risk-adjusted return value. When scaling up, we should consider widening the wings of Iron Condors as opposed to increasing the number of contracts.