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Wider Iron Condors

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A recent comment from a reader (Logan) suggested a worthy topic.

Choosing strike prices for any option strategy is important.  Most traders have a method for doing that, such as using charts (selling calls above support and puts below resistance) or statistics (selling options that are a specific number of standard deviations OTM).  Alternatives include selling options within a specific delta range, or perhaps a minimum premium.

Question for credit spread sellers (and iron condor traders): If you always sell 10-point spreads, have you looked at the idea of selling 20- or 30-point spreads? 

NOTE:  Spread width is the distance between the two options that comprise a credit spread.

Equivalent trade

Let's be certain we all understand the position when a wider spread is sold.

Example: GOOG iron condors (Trade itemized is a randomly chosen example.  Please do not consider it to be a recommendation)

Your customary choice is to sell 10-point spreads, using GOOG

Sell 10 GOOG Aug 510/520 call spreads; premium = $1.90

Sell 10 GOOG Aug 450/460 put spreads; premium = $1.30

Trade: Collect $3.20 for 10-point GOOG Aug iron condor

As an alternative, you are considering the 20-point iron condor

Sell 10 GOOG Aug 510/530 C spreads; premium = $3.00

Sell 10 GOOG Aug 440/460 P spreads; premium = $2.30

Trade: Collect $5.30 premium for 20-point iron condor

This may be obvious to experienced traders, but if you never thought about it, or if you are new to options trading, then this simple conclusion may be news to you:

When you own the 20-point iron condor, your position is exactly the same as if you bought each of the two 10-point iron condors.

NOTE:  If you prefer to own the wider credit spread or iron condor, please do not buy each of the more narrow spreads.  Just buy the position you want to own when entering the order.  This is very important because it cuts commissions in half and guarantees better fills (half as many bid-ask spreads to overcome).

In our example, 10 GOOG Aug 510/530C; 440/460P iron condors @ $5.30

is equivalent to

10 GOOG Aug 510/520C; 450/460P iron condors @ $3.20 PLUS

10 GOOG Aug 520/530C; 440/450P iron condors @ $2.10

Thus, if a 10-lot is your correct position size, then 5-lots of the wider iron condor uses the same margin and has the same risk as owning 5 of each of the narrow spreads.

Why is this important?

  • Size.  Owning one double-width iron condor is equivalent to owning one each of two different narrower positions.  Thus, when trading a double-width position, the correct size is HALF your usual size.  This is very important for risk management. 
  • 20-point spreads allow the trader to own two iron condors simultaneous
  • If the CTM (closer to the money) position is near the borderline of your comfort zone, one way to minimize that concern is to cut position size in half and add an iron condor that is one strike farther OTM on each side.  Note, this does not remove the risk associated with the CTM position, but averages that risk with another iron condor.  In other words, you have 5 CTM and 5 farther OTM iron condors.

I always trade and describe the narrow iron condor.  However, there are advantages to the wider position.  In the example, we traded one iron condor, collecting a premium of $320 and another collecting $210.  For most traders, that farther OTM, lower premium iron condor is less risky to own from the point of view that it is less likley to lose the maximum.


I'm very proud of The Rookie's Guide to Options.  Unsolicited comments offer almost unanimous praise.  If you are seriously interested in learning about options, this is the book for you.  For the beginner, but it contains much material not discussed elsewhere, and is appropriate for intermediate traders as well.


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