Option Strategies: The Ideal Strike Width for Best Return on Capital

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Tasty trade’s Tom Sosnoff and Tony Battista explain how to increase profits on defined risk strategies by increasing the width of the strikes. This study looks at the ROC for 1pt, 2pt, and 5pt wide iron condors, finding that the highest ROC comes from the 2pt wide spread.

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Comments

Spoochy McGoo says:

Are they comparing the width of the short strikes or the width of the call/put spreads?

Tempus0 says:

Great research. The 5pt IC is the most optimal for growth of capital according to the Kelly Criterion.

2pt IC: the optimal bet size is 25,87% of capital (normalized net profit of $17,38 per trade on an 1k account)

per trade.

5pt IC: the optimal bet size is 39,31% of capital (normalized net profit of $13,40 per trade on an 1k account)

per trade.

PS! I would not recommend trading according to these bet sizes as The Kelly Criterion is a mathematical model for maximizing growth given fixed probabilities and profit/loss, which is not true for the stock/option marked. (A bet size of 0.1x – 0.25x Kelly would be more normal in real life situations depending on variance).

Glauber Brito says:

Guys, you're the best !!

sector5ip says:

Holly smokes! whatsup with THE HAND??

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