ROC on! Video Discussion from TastyTrade.com

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This video discusses how to increase profits on defined risk strategies and analyzes the width of strikes on short verticals and iron condors, thus improving your return on capital.

Defined risk strategies generally have a higher Return on Capital than undefined risk strategies, because they have a lower probability of success. A way to increase profits (and probabilities) is to increase the strike width.

The question posed for the study is, is there a strike width that is more efficient than others to improve probability of success?

The study included $SPY, $GLD, $TLT, and $IWM, 2009-Present, compared a 1, 2 and 5 point wide strike. One lot each.

Generally the 5 point wide had a deeper loss (appears on one trade if you look at slide 6 of 9), but otherwise had a larger profit.

Slide 7 shows the P/L on the 5 point was larger, however, on the 2 point wide, there was a larger “Average Return on Capital”.

Slide 9 shows cummulative buying power used: and the 2 point shows a larger return on capital, therefore, if you are solely looking at return on capital, the two point wide iron condor is the best for ROC. The largest average credit, and most money made was on the 5 point wide.

That being said, the best “Return on Capital” is at $2 in this study, but to hit a balance of increased Profit and Return on Capital, you can go above $2 strikes.

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