Rate of return - Iron condor and Spreads

Discussion in 'Options' started by moolah, May 29, 2020.

  1. moolah

    moolah

    How does one calculate the rate of return % in iron condor and spreads?
     
  2. guru

    guru

    If you buy $10 spread for $8 then potential ROI is $2, so 25% of the $8 spent.
    Likewise, if you received $2 credit on a $10 spread then your potential/max ROI would be the same 25% - making $2 on the $8 at risk.
     
    Last edited: May 29, 2020
  3. lindq

    lindq


    Past performance is no guarantee of future results. That's how to calculate rate of return.
     
    guru likes this.
  4. As lindq said, past performance does not guarantee results, but still, analyzing historical data of the asset you plan on trading options on is a good way to get a rough idea of what to expect.

    However, the most important thing is to know the cost involved in adjusting and ultimately exiting your position (should you need to) and how that impacts your expected performance over time, specially if you will be trading credit spreads.

    When you trade Iron Condors for a credit, adjustments will likely be necessary until expiration day (more or less frequently depending of the distance you leave between wings, the asset, etc), so based on the strategy you have in mind, build a spreadsheet with the historical data of the underlying asset and calculate the premium you expect to receive as well as the cost of adjusting and exiting your position to see if you can expect a positive return over time.

    If on the other hand, if you are buying to open Iron Condors, then do the same, use historical data to see if the cost of placing your order vs the reward derived from the movement of the underlying asset can turnout a profit or at least the expectation of one.