This segment reveals the results of a study to determine the optimum width of an iron condor, a defined risk trade allowable in an IRA account, when the short leg has a 30 delta plus another study comparing an iron condor to a strangle. Everyone trading either an IRA account or a smaller account needs to watch this and every trader will benefit from the information here. Undefined risk trades are not permitted in an IRA account. That means selling strangles is not possible. An iron condor, which adds a farther out long to each side of a strangle is a defined risk trade and is therefore allowed in an IRA. The question is then how wide to make each side of the iron condor. We did some research on them so you don’t have to.
A study was conducted using the SPY (S&P 500 ETF) from 2005 to present. We sold short a SPY Iron Condor with 45 days to expiration (DTE). We compared the Short 30 delta, $2 wide Iron Condor, to the Short 30 delta, to the $5 wide Iron Condor and the Short 30 delta, $10 wide Iron Condor. A table comparing the $2 wide, $5 wide and $10 wide Iron Condors was displayed. The table included the percentage of profitability, average P/L, largest profit and largest loss.
We then compared one of the iron condors we tested against a short strangle. A second study was conducted using the SPY (S&P 500 ETF) from 2005 to present. We sold short a SPY Iron Condor with 45 days to expiration (DTE). We compared the Short 30 delta, $10 wide Iron Condor to the Short 30 delta Strangle. A table comparing the $10 wide Iron Condor to the 30 delta Short Strangle was displayed. The table included the percentage of profitability, average P/L, largest profit and largest loss.
Watch this segment of “Strategies for Your IRA” with Tom Sosnoff and Tony Battista for the takeaways and to learn how wide Iron Condors compare to Short Strangles.
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