Friday, April 3, 2015

RUT Iron Condor - Dynamic Exit - 52 DTE - 12 Delta

In this post we will look at the backtest results for dynamic exits of 52 days-to-expiration (DTE) Iron Condors (IC), with 12 delta short strikes, with different profit and loss exits.  This is a non-directional options trading strategy that seeks to profit from a market that stays within in a range between the two short strikes of the Iron Condor.

For some background on how the results are presented and to read my prior dynamic exit posts, please visit the summary page: Dynamic Exit Iron Condor Articles.

As discussed in the two overview posts on the summary page above, we will look at the same three Iron Condor starting structures that have been backtested on this blog: Standard (STD), Delta Neutral (DN), and Extra Long Put (EL).

Also as discussed in the two overview posts, we will look at three different exits on each of these three starting structures:
  • ML40% - this is a Margin Loss % Exit.  Trades using this exit strategy either exit at 8 DTE OR if the trade has a loss greater than 40% of the margin requirement for the trade. (ML40% = Max Loss 40%)
  • BSP - this is a Price Movement Exit.  Trades using this exit strategy either exit at 8 DTE OR if the price of the underlying (RUT) moves below the strike of the short put.  (BSP = Below Short Put).
  • 0.6:0.6 - This is an Initial Credit % Profit/Loss Exit. Trades using this exit strategy either exit at 8 DTE OR if the trade has a profit of 60% of its initial credit OR if the trade has a loss of 60% of its initial credit.  

This equity curve chart below is similar to the equity curves in my prior posts.  In the chart below, all of the STD Iron Condor versions have blue equity curves, all of the DN Iron Condor versions have green equity curves, and all of the EL Iron Condor versions have red equity curves.  The solid lines represent the equity curves for the "no touch" version, while the dashed lines represent the equity curves for the dynamically exited versions.

Iron Condor Dynamic Exit Equity Curves RUT 52 DTE 12 Delta All Versions
(click to enlarge)

The highest and second highest overall returns went to the Standard (STD) and Delta Neutral Iron Condors with the BSP exit: STD-BSP and DN-BSP.  The BSP versions closed at either 8 DTE, or when the underlying dropped below the strike of the short put.  The STD and DN versions without a dynamic exit were in third and fourth place respectively in terms of overall returns.

The details associated with each of the starting structure backtests can be found in the posts below:

In the next post I will show the results for the 52 DTE, 12 delta short strike Iron Condor options trading strategy, with varying Initial Credit % Profit/Loss Exits.

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Anonymous said...

You have some truly amazing stuff...Have been following your posts for a while...wondering, if you ever traded/done any research on iron butterflies instead of iron condors...

Anonymous said...

I also find your work very interesting - well done. Seems like the big risk in trading iron condors is the potential for very large losses. Have you been tracking max draw down. That seems like a very key stat, especially for high risk trades like ICs.

Dave R. said...

Thank you both for the feedback...I really appreciate it.

Regarding butterflies, yes, I have researched butters and will try to start posting butterfly results later this year.

Regarding risk, there are a number of approaches for management. I have discussed this in a general sense in some early posts. Here are a few points to consider:

1. Only trade options with a % of your overall account size. For example, right now I have on 6 trades (overall net short) but my maintenance requirement is between 12% and 15% of my account size. I may be entering a few more during the next two weeks, but I will keep my overall maintenance requirement at 40% as a maximum for all 10 potential trades...although I will try to keep this number less than 30%.

2. Create an entry structure that is compatible with your underlying:
-- Is there skew with the options? then unbalance the structure appropriately.
-- Where is the underlying in terms of support and resistance? lean or hedge appropriately
-- Where is the current IV versus historical...increase or decrease size/leverage appropriately.

Regarding max drawdown, yes I have been tracking drawdowns in terms of the defined risk of each trade.

In the backtests that I am presenting on this blog, I am showing baseline structures that do not represent how I would actually trade. The results show how mechanical approaches work so that you can apply this information to your own trading.

Thanks again for your comments!


Anonymous said...

Great...The reason I said this is the "Tastytrade" guys (Tom Sosnoff - founder of ThinkorSwim) also did a lot of research and put some of their results on their youtube channel...they show that a straddle almost ALWAYS performs better than a, I was wondering if IBs did better than ICs in your reserarch...Thanks...

Dave R. said...

Interesting...I'll take a look at the TastyTrade work on straddles.

With my own trading, I tend to gravitate towards condors and strangles, with an occasional butterfly. This is the primary reason that I started posting the backtesting results on's the strategy that I primarily trade.

Thanks for you comment and tip!


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