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Lets say I have a delta neutral portfolio, iron condors on spy for example. I'm short a call credit spread and a put credit credit spread of equal widths. I would like to determine the expected value of this portfolio and other potential statistics I could use for evaluation.

My 2 questions are:

  1. How do I determine the expected return of an all option portfolio?
  2. What other statistics can I use to evaluate (in statistical rigor) how "good" this portfolio is?

A variation of this is, if I only sell the spreads during high implied volatility how does this change the calculations? I'm assuming mean reversion on IV and that it's normally distributed. What if we assume that selling options has a slight edge?

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  • $\begingroup$ This question is so broad that it could basically be the abstract of MSc thesis.. :D When I look at the first part of your question (including the two questions) I am thinking why not scenario based estimations. You generate scenarios for SPY based on historic data (say 1/2 years) and then evaluate your profit-loss for each scenario? From there you can compute mean, variance and tail related risk statistics like VaR and CVaR. $\endgroup$ – Sanjay Aug 1 at 12:52

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