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Sunday, August 31, 2014

Iron Condor Losing Trades - Summary

In the last six posts, we looked at the start dates for all of the losing "no touch" iron condor (IC) trades in the RUT and SPX during our seven year backtest range.  You can find these six posts at the following links:


In this post we will look at the expiration dates for all of these same losing "no touch" IC trades.  By looking at the expiration dates, we can include all six of the different days-to-expiration (DTE) versions of the "no touch" strategy in a single table.  This will help us see if different DTE for a given expiration date would have resulted in greater/fewer losing trades.

The four tables below represent all of the losing trades for the RUT and SPX "no touch" IC trades in our backtests.  In these tables, I split the trades that were losers on the call side from trades that were losers on the put side. 

In all four tables, each row represents a unique option expiration, with the blue columns associated with the RUT trades and the green columns associated with the SPX trades.  Each of the sub-columns for the RUT and SPX list one of the six DTE windows in our backtests (80, 66, 52, 38, 31, 24).  These sub-columns contain cells that are either blank or contain a number from 1 to 4.  These numbers tell us how many of the four delta variations (8 delta, 12 delta, 16 delta, 20 delta) for a specific DTE window were losers.  

Recall that in most cases in our losing trade analysis, if only one delta variation for a given DTE was a loser, it was typically the 20 delta variation.  If there were two losers, they were typically the 16 and 20 delta variations.  If there were three losers, they were typically the 12, 16, and 20 delta variations.  For example, when you see a 2 in a cell in the tables below, that is most likely telling you that the 16 and 20 delta variations were losers.

Now let's dive into the tables.  The first set of two tables below, looks only at the losing RUT and SPX "no touch" IC trades that lost as a result of a large call side (call credit spread) loss.  The first table covers the expirations from 02/17/2007 through 09/18/2010.  The second table covers the expirations from 10/16/2010 through 04/19/2014.




There are some interesting patterns that are visible in the data.  For example, for the 09/19/2009 expiration, both the RUT and SPX trades lost with most of their delta variations at 80 and 60 DTE, but the other DTE versions of the trades at this expiration were all winners across all delta variations.

For the 07/16/2011 expiration, both the RUT and SPX trades lost with most of their delta variations at 38, 31, and 24 DTE, but the other DTE versions of the trades at this expiration were all winners across all delta variations.  There were also occasions where there was no overlap between the RUT and SPX, but in general, a losing expiration for the RUT corresponded to a losing expiration for the SPX.

The second set of two tables, looks only at the losing RUT and SPX "no touch" IC trades that lost as a result of a large put side (put credit spread) loss.  The first table covers the expirations from 02/17/2007 through 09/18/2010.  The second table covers the expirations from 10/16/2010 through 04/19/2014.




Similar patterns are visible with the put side tables as with the call side tables.  With the very bullish market during the last couple of years, the loss density on the call side is far greater than on the put side.  During this two year period, there were very few IC DTE versions that experienced losses as a result of outsized put spread losses.  It is also interesting to note that with several expirations, it did not matter when you started the trade...the expiration still resulted in losses across a range of  DTE start dates.

The data used to generate these tables is included in the embedded spreadsheet below.  You can browse the data in the embedded spreadsheet or download it from the link below.



You can download this spreadsheet from the blog page at this link: "No Touch" Iron Condor Losing Trades Spreadsheet.


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