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Tuesday, December 20, 2016

New Iron Condor Series Introduction

If you've been following my Twitter feed, you know that I have started analyzing Iron Condors (IC) again. I am looking at the same three structures that I've looked at in past posts (standard balanced IC, delta neutral IC, and extra long put IC), but with varying wing widths.  Part of the motivation here is to see if we can get close to short strangle returns, but with defined risk. 

In the screen shots below, are examples of these three structures, with the three different wing widths that will be reviewed (25 point, 50 point, and 75 point).   These screen shots were taken after market close on Monday, December 19th, using the SPX 17-Feb-2017 expiration at 59 DTE.  The standard balanced ICs are all 10 contracts / 10 lot.  The delta neutral IC and extra long put IC modify this 10 lot structure as shown below.


Standard Balanced Iron Condor (ST)
  • 25 point wing width 
    • Strikes: 2415 / 2390 / 2045 / 2020
    • Short Delta: 8 
    • Credit: $2,100
    • Max Risk: $22,850
59 DTE SPX standard balanced iron condor with 8 delta short strikes and 25 point wings
(click to enlarge)

  • 50 point wing width 
    • Strikes: 2440 / 2390 / 2045 / 1995
    • Short Delta: 8 
    • Credit: $3,600
    • Max Risk: $46,400
59 DTE SPX standard balanced iron condor with 8 delta short strikes and 50 point wings
(click to enlarge)

  • 75 point wing width
    • Strikes: 2465 / 2390 / 2045 / 1970
    • Short Delta: 8
    • Credit: $4,700
    • Max Risk: $70,300
59 DTE SPX standard balanced iron condor with 8 delta short strikes and 75 point wings
(click to enlarge)



Extra Long Put Iron Condor (EL)
  • 25 point wing width
    • Strikes: 2415 / 2390 / 2045 / 2020
    • Short Delta: 8
    • Credit: $1,565
    • Max Risk: $23,435
59 DTE SPX extra long put iron condor with 8 delta short strikes and 25 point wings
(click to enlarge)

  • 50 point wing width
    • Strikes: 2440 / 2390 / 2045 / 1995
    • Short Delta: 8
    • Credit: $3,145
    • Max Risk: $46,855
59 DTE SPX extra long put iron condor with 8 delta short strikes and 50 point wings
(click to enlarge)

  • 75 point wing width
    • Strikes: 2465 / 2390 / 2045 / 1970
    • Short Delta: 8
    • Credit: $4,340
    • Max Risk: $70,660
59 DTE SPX extra long put iron condor with 8 delta short strikes and 75 point wings
(click to enlarge)



Delta Neutral Iron Condor (DN)
  • 25 point wing width
    • Strikes: 2415 / 2390 / 2045 / 2020
    • Short Delta: 8
    • Credit: $1,525
    • Max Risk: $23,475
59 DTE SPX delta neutral iron condor with 8 delta short strikes and 25 point wings
(click to enlarge)

  • 50 point wing width
    • Strikes: 2440 / 2390 / 2045 / 1995
    • Short Delta: 8
    • Credit: $2,675
    • Max Risk: $47,325
59 DTE SPX delta neutral iron condor with 8 delta short strikes and 50 point wings
(click to enlarge)

  • 75 point wing width
    • Strikes: 2465 / 2390 / 2045 / 1970
    • Short Delta: 8
    • Credit: $3,575
    • Max Risk: $71,425
59 DTE SPX delta neutral iron condor with 8 delta short strikes and 75 point wings
(click to enlarge)

Over the next several months I will review how these 9 IC variations have performed between the Jan-2007 expiration and the Sep-2016 expiration on the SPX.  Unlike past tests, in this series, I will include weekly options.  This will provide more trade occurrences, thus resulting in more meaningful metrics.

I will look at four different short strike deltas (8, 12, 16, and 20), across several DTE (38, 45, 52, 59, 66, 73, and 80) for the 9 IC variations above.

The following 12 exits will be tested for each of the 9 variations at each delta, for each DTE:
  1. NA:NA - exit at 2 DTE.
  2. NA:50 - exit if the trade has a profit of 50% of its initial credit OR 2 DTE.
  3. NA:75 - exit if the trade has a profit of 75% of its initial credit OR 2 DTE.
  4. 100:NA - exit if the trade has a loss of 100% of its initial credit OR 2 DTE.
  5. 100:50 - exit if the trade has a loss of 100% of its initial credit OR if the trade has a profit of 50% of its initial credit OR 2 DTE.
  6. 100:75 - exit if the trade has a loss of 100% of its initial credit OR if the trade has a profit of 75% of its initial credit OR 2 DTE.
  7. 200:NA - exit if the trade has a loss of 200% of its initial credit OR 2 DTE.
  8. 200:50 - exit if the trade has a loss of 200% of its initial credit OR if the trade has a profit of 50% of its initial credit OR 2 DTE.
  9. 200:75 - exit if the trade has a loss of 200% of its initial credit OR if the trade has a profit of 75% of its initial credit OR 2 DTE.
  10. 300:NA - exit if the trade has a loss of 300% of its initial credit OR 2 DTE.
  11. 300:50 - exit if the trade has a loss of 300% of its initial credit OR if the trade has a profit of 50% of its initial credit OR 2 DTE.
  12. 300:75 - exit if the trade has a loss of 300% of its initial credit OR if the trade has a profit of 75% of its initial credit OR 2 DTE.
For a given DTE, there will be 432 test runs (9 variations x 4 deltas x 12 exits).  As mentioned earlier, each test run will enter as many trades as possible that meet the entry criteria between the Jan-2007 expiration and the Sep-2016 expiration.  For a given DTE, this will result in the backtest of approximately 100,000 trades.  This process will take some time!


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2 comments:

Unknown said...

Dave, all of the structures; ST,DN,EL all have the same strikes and Delta
Strikes: 2415 / 2390 / 2045 / 2020
Short Delta: 8 
What differentiates them to be different; Standard, Neutral or Long put?

Thanks for your work
Mike T

Dave R. said...

ST - standard balanced iron condor:
+10x2415 call / -10x2390 call / -10x2045 put / +10x2020 put

EL - extra long put iron condor:
+10x2415 call / -10x2390 call / -10x2045 put / +11x2020 put

DN - delta neutral iron condor:
+nx2415 call / -nx2390 call / -10x2045 put / +10x2020 put
where n is some number less than 10 that results in a delta neutral structure. In the screenshots above, n was +/- 5.

Thanks,
Dave

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