Inflated Implied Volatility allows traders to sell further OTM options while still collecting sufficient premium, especially in undefined risk trades such as Strangles or naked potions. Is the same true for Iron Condors, particularly Dynamic Iron Condors?

Using SPY from 2005 to present in the expiration cycles closest to 45 DTE, our Research Team ran a study in which they sold Dynamic Iron Condors consisting of short 20 delta options and long 10 delta options. By compartmentalizing the IVR for each position, our team then analyzed:

Average Spread Width as a percentage of the underlying price
Average Distance of short options from the current price of SPY
Average Credit of individual vertical spreads and Iron Condor as a whole

The Results

Predictably, as IVR in the underlying picked up, the short option’s distance from the current price also widened, as did the 10 delta long option from the 20 delta short option.

Despite the fact that wider spreads indicate more notional risk in times of higher volatility, traders are able to collect more credit, boosting the risk/reward of the position.