Wednesday, June 25, 2014

Iron Condor Results Summary

I could continue my analysis of these baseline RUT "no touch" Iron Condors (ICs), but I can see I'm losing some folks, so we will move on to the SPX after this summary post.

Another area to explore would have been the initial conditions at trade entry, how those conditions changed during the life of the trade, and how those conditions and condition-changes correlate to winning and losing trades.  The initial conditions could include broad market indicators, RUT specific indicators, implied volatility, skew, etc...and indicators that are derivatives of these indicators.  For example, the rate-of-change of volatility.

At this point we do have enough data to be able to compare this standard "no touch" RUT IC to the variations we will explore in the future.  Future variations of ICs may include:

  • "no touch" + an extra long put
  • "no touch" + an extra long call
  • "no touch" + an extra long put at various locations between at-the-money (ATM) and the short put
  • "no touch" + an extra long call at various locations between ATM and the short call
  • "no touch" but with uneven wings so that we start delta neutral
  • "no touch" but with uneven wings to position the trade with the market trend
  • any of the above variations, but with adjustments based on market indicators
  • any of the above variations, but with adjustments based on delta
  • any of the above variations, but with adjustments based on P&L
  • etc...

When it comes to the adjustment triggers mentioned above (market indicators, delta, P&L, etc), these could be based on our overall IC position, a specific option strike in our position, an option strike of reference (for example the ATM strike at trade initiation).  The adjustments themselves could involve buying long options or debit spreads, or buying back some of our short options or credit spreads, or closing the entire trade.  There are a lot of possibilities with adjustments!

Most of the summary data associated with the "no touch" RUT IC backtests is shown in the embedded Google Docs spreadsheet below.  This spreadsheet is also included on the following page in this blog:


Anonymous said...

Interesting research here - look forward to new posts. You are closing trades at 8 DTE? What's the rationale behind that? Also, where did you get your historic options data?

Dave R. said...

Yes, the trades are being closed at 8 DTE, based on the expiration date in the OPRA code for the indices. This 8 DTE date corresponds to the Friday before expiration, because the OPRA codes for the indices contain the date corresponding to the Saturday after expiration.

This DTE was chosen in order to reduce the gamma impact, but still give the trades (across all six DTE ranges in the tests in the blog posts) enough days in trade (DIT) to see trends.

I use historic options data from the sources listed below, but for these tests I am using the iVolatility EOD data.

iVolatility -
LiveVol -


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