Sunday, May 3, 2015

RUT Iron Condor - Dynamic Exit - 66 DTE Results Summary

Over the last several posts we reviewed the backtest results for Iron Condors initiated at 66 days to expiration (DTE) on the Russell 2000 Index (RUT).  To be consistent with all of the earlier backtests posted on this blog, we looked at 66 DTE Iron Condors initiated with short strikes at four different locations: 8 delta, 12 delta, 16 delta, and 20 delta. To read the prior dynamic exit posts, please visit the summary page: Dynamic Exit Iron Condor Articles.

For each of these four different short strike deltas, we tested three different starting structures, with six different dynamic exits.  These various combinations, resulted in 21 separate eight year tests for each delta when also including the three baseline (non-exited) tests.  Lastly, each eight year test contained 94 unique trades.

To review, the three RUT Iron Condor starting structures were composed of 20 point wide credit spreads with short strikes at the specified delta mentioned above, and defined as:
  • Standard (STD): 10 put credit spreads, and 10 call credit spreads.
  • Delta Neutral (DN): 10 put credit spreads, and from 5 to 10 call credit spreads - the number is adjusted at trade initiation to create a delta neutral Iron Condor.
  • Extra Long Put (EL): 10 put credit spreads, 10 call credit spreads, and 1 extra long put.
The three categories of dynamic exit tested were:
  • 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 % Loss/Profit Exit. Trades using this exit strategy either exit at 8 DTE OR if the trade has a loss of 60% of its initial credit OR if the trade has a profit of 60% of its initial credit.  This can also be viewed as a Risk:Reward ratio; risking 60% of the credit to make 60% of the credit.  A 0.7:0.9 variation would mean that the strategy is risking 70% to make 90%...taking a loss at 70% of the initial credit or taking a profit at 90% of the initial credit or exiting at 8 DTE if neither of the prior two criteria were satisfied.
The test results are summarized in the tables below. with one table for each of the four short strike deltas.  The "Strategy Variation" column uses the nomenclature listed above in order to distinguish between the different iron condor variations.

Iron Condor Dynamic Exit Statistics RUT 66 DTE 8 Delta
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For the 8 delta Iron Condor options strategy variations, the win rates were highest with the non-dynamically exited, the ML40%, and the BSP versions.  You can also see the trend that the Initial Credit %Loss/Profit exits greatly reduced the "worst month" losses, with all of these losses only in the high teens / low 20% range.  This reduction in the "worst month" values came at the cost of a reduced the win rate.   The largest annualized monthly returns went to the STD-BSP and STD-0.8:0.9 variations.  Across each exit approach, the STD variations were the top performers in terms of average return.

Iron Condor Dynamic Exit Statistics RUT 66 DTE 12 Delta
(click to enlarge)
For the 12 delta Iron Condor variations, all but three had Sharpe Ratios exceeding 1.0.  These three were the non-dynamically exited variations.  The highest win rates and worst months went to the non-dynamically exited, the ML40% and BSP variations...the same pattern we noticed in the 8 delta strategies, and in the corresponding 38 DTE and 52 DTE strategies.  The largest annualized monthly returns went to the STD-ML40% and STD-BSP variations.

Iron Condor Dynamic Exit Statistics RUT 66 DTE 16 Delta
(click to enlarge)
With the 16 delta Iron Condor variations, the highest Sharpe Ratio was 1.40 and went to the STD-0.7:0.9 variation.  The 16 delta variations continued the same win rate and worst month pattern that we observed in the 8 and 12 delta variations, although not as pronounced.  The lowest worst month values were, in general, more than double the lowest worst month values for the 8 delta variations.  The largest annualized monthly returns went to the STD variation, with the STD-ML40% and the STD-0.8:0.9 variations in second and third place respectively.  I also thought it was interesting that in 2010, the DN variations performed the strongest.  2013 was also a strong year for the DN structure, for variations that did not use the Initial Credit % Loss/Profit Exits.

Iron Condor Dynamic Exit Statistics RUT 66 DTE 20 Delta
(click to enlarge)
Recall that the 16 and 20 delta 66 DTE versions had some of the highest overall returns across all of the DTE and deltas tested.  The worst month and win rate patterns were still present, although these patterns continued to break down with the 20 delta variations.  The highest Sharpe Ratio was 1.65 and went to the STD-0.6:0.6 variation.  The strength of the STD structure is very strong with the 20 delta tests, and is apparent from the high Sharpe Ratios and high average annualized monthly returns.  The largest annualized monthly returns went to the STD-0.6:0.9 variation.

Across all of the 66 DTE Iron Condor strategy variations, it is clear that the Risk:Reward exits had a significant positive impact on the "worst month" values.  Although at higher short strike deltas (16 and 20), the ML40% exit had a strong positive effect.  One pattern that was fairly clear was the general out-performance of the STD structure over the DN and EL structures.  If I was forced to trade one of these 66 DTE strategies "as is" with no adjustments, I would pick one of the 8 or 12 delta strategies using a risk:reward exit, likely one of the STD-0.8:0.9 or STD-07:0.9 variations.

All of the data in the tables above can be downloaded in spreadsheet form from Google Docs at:

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