Copyright © 2016 – 2025 Food for Theta, LLC. All rights reserved.
The Food for Theta brand and all content on the Food for Theta website are copyrighted materials and may not be reproduced or redistributed for profit without written consent from the owner.
back
neutral strategies
Iron Condors
Analyzing the risk profile of iron condors
Varying Wing Size
Now that we've seen how varying the spread between the wings can change an iron condor, let's see what happens when we mess with the size of the wings...
Standard Iron Condor
Again, we have the standard iron condor from the first page. This one has $3-wide wings. What happens if we make them only $1 wide? What about $5 wide?
Baby Wings
In the example above we maintained the $4 spread between the two sides, but made the wings only $1 wide. The result is a lower profit potential, a lower loss potential, and a smaller profit zone. Keep in mind that the long and short options are so close together that any changes in their value would almost cancel out. This high friction would result in an extremely slow moving P/L. A position like this one would suffer the most from illiquidity issues and leave almost no room for defensive tactics.
Wide Wings & Synthetic Strangles
In this example, the wings are now $5 wide. The long legs cost almost nothing to buy at only $0.02 each which increases the maximum profit potential. The higher credit also widens the break-evens which increases the probability of profit. Because the long options cost so little and are so far away, they create almost no friction on the spreads P/L. Some other advantages of a position like this are fewer liquidity concerns, as well as more effective defensive options. The total risk, however, is far greater than the original – it might as well just be a strangle. In fact, a strategy like this is often used as a strangle substitute, or "synthetic strangle", in accounts that do not allow