Iron Condors vs Short Straddles

J

jwcapital

I recently read an interesting article that compared buy and hold vs. short straddles (involving the SPY). The article basically stated that buy and hold is best with the VIX greater than 25 and the short straddle works best in the 18-25 range. I took the data and used bull put spreads deep OTM as my equivalent to buy and hold. The data went back about 10 years. All strategies lost money during the extremely high VIX last year, but the buy and hold lost the most; the short straddle lost less, and the bull put spread lost the least.

Then, I took at look at iron condors vs short straddles during the same time period and the various VIX values. The IC outperformed the short straddle in higher VIX values. I wanted to know why. The IC offers more protection than the short straddle because of the insufficient premiums available. In other words, the distance between the designated bodies (using just 1SD) is far greater than the total premiums received.

When the VIX gets into the 18-25 range, the distance between the edges of the body and the total premiums received are closer in value. Just some interesting info.
 
I am not sure I understand your analysis of straddle vs. IC.

A possible investigation should be an analysis of straddle vs. strangle with short strikes of strangle at 2/3 STD.

As for ICs at 2/3 STD, they would underperform and certainly make the writer in tremondous stress since the short strike should be hit.
 
Quote from jwcapital:

I recently read an interesting article that compared buy and hold vs. short straddles (involving the SPY). The article basically stated that buy and hold is best with the VIX greater than 25 and the short straddle works best in the 18-25 range. I took the data and used bull put spreads deep OTM as my equivalent to buy and hold. The data went back about 10 years. All strategies lost money during the extremely high VIX last year, but the buy and hold lost the most; the short straddle lost less, and the bull put spread lost the least.

Then, I took at look at iron condors vs short straddles during the same time period and the various VIX values. The IC outperformed the short straddle in higher VIX values. I wanted to know why. The IC offers more protection than the short straddle because of the insufficient premiums available. In other words, the distance between the designated bodies (using just 1SD) is far greater than the total premiums received.

When the VIX gets into the 18-25 range, the distance between the edges of the body and the total premiums received are closer in value. Just some interesting info.
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The main problem with buy and hold is the huge down move. But, it gains with the big up move.

Iton condors LIMIT gains and limit risk. I'm just guessing that preventing the large losses combined with collecting nice premium in neutral markets is sufficient to make them better over the longer term.

We all know that buy writing is better than buy and hold most of the time. Same idea. Make less when market soars, make more the rest of the time.

When VIX is high, markets tend to be falling. Thus that's not good for buy and hold. It's also not too good fro straddle seller. The IC trader loses less in thsoe high VIX, falling markets.

Again, no numbers, just my feeling.

Mark
 
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