Our preferred basic strategy at tastylive is to be premium sellers to take advantage of Theta (time decay). Our go to strategy for selling premium is the one Standard Deviation (SD) Strangle consisting of the 16 Delta Put and 16 Delta Call. A short Strangle though is an undefined risk trade and some traders are uncomfortable with that so they prefer the Iron Condor which defines the risk by buying a further out Put and a further out Call. When a trader is short a Call or a Vertical Call Spread the trader is subject to dividend risk. A way to avoid the dividend risk of an Iron Condor is to buy the corresponding Put spread instead of selling the Call spread and thus creating a Synthetic Iron Condor, aka a Put Condor. How does a strategy of Put Condors compare to Iron Condors?
Our study was conducted in the SPY (S&P 500 ETF) using data from 2005 to the present. Using options with 45 Days To Expiration (DTE) we compared a Dynamic Iron Condor (short 20 Delta Put & Call, long 10 Delta Put & Call) to a Dynamic Put Condor (short the same Put spread and long the Put spread with the same strikes as the call spread). We managed the trades at 50% of max profit if possible or held to expiration.
The P/L graphs of the two different strategies were shown and they were similar. A table of the results comparing the Iron Condor to the Put Condor was then displayed. The table included the average credit / debit, success rate, average P/L and average days in the trade. The table showed most of the metrics were similar but the average P/L was slightly better for the Iron Condor.
For more information on Dynamic Iron Condors see:
tasty BITES from September 2, 2015: "Iron Condors | Fixed vs Dynamic"
Strategies For Your IRA from May 24, 2016: "Dynamic Iron Condors: Capital Allocation"
Strategies For Your IRA from May 31, 2016: "Dynamic Iron Flies"
Watch this segment of Market Measures with Tom Sosnoff and Tony Battista for the key takeaways and the detailed study results comparing a strategy of short Iron Condors to the synthetic alternative the Put Condor.
This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.