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Tuesday, February 7, 2017

52 DTE Iron Condor Results Summary

This article looks at the backtest results of iron condors (IC) entered at 52 days to expiration (DTE). These tests covered 9 IC variations, with short strike deltas at four locations (8, 12, 16, 20), utilizing 12 exits.  In all, there were 432 test runs (9 variations x 4 deltas x 12 exits). Each test run executed more than 200 SPX IC trades between the Jan-2007 expiration and the Sep-2016 expiration.  I used weekly options for this testing, so there were more than 12 trades per year.  In total, there were 94,752 total trades entered for the 52 DTE testing.

You can find the prior SPX IC posts in this series at the links below:

Normalized P&L per Day

The P&L per day values shown in the charts below are expressed as a percentage of the max risk for that test run...this is necessary in order to fairly compare the returns of each of the different wing widths (25 point, 50 point, 75 point)..

The results:
  1. Similar to the 38 and 45 DTE ICs, there is more variability in P&L per day readings in the 25 point wing ICs, than in the larger wing width ICs
  2. Again, similar to the prior test runs, as the delta of the short strikes increases, the variability in the P&L per day readings increases
  3. The largest reading was 0.13%, which is lower than the largest reading of 0.18% for the 38 and 45 DTE ICs.  There were three strategy variations with a 0.13% value:
    1. ST (NA:75), 25 point wings, 8 delta
    2. ST (100:75), 25 point wings, 8 delta
    3. DN (NA:50), 25 point wings, 16 delta
  4. The next best reading was 0.12% and was associated with seven test runs: 
    1. DN (NA:50), 25 point wings, 8 delta
    2. DN (NA:50), 50 point wings, 20 delta
    3. ST (100:50), 25 point wings, 8 delta
    4. DN (NA:50), 25 point wings, 20 delta
    5. DN (NA:50), 25 point wings, 12 delta
    6. DN (NA:75), 25 point wings, 8 delta
    7. ST (300:50), 25 point wings, 16 delta
  5. 22 of the top 30 readings were associated with a profit taking level of 50%
    1. Of these 22 readings, 13 had 25 point wing widths
(click to enlarge)


Normalized P&L per Trade

The normalized P&L per trade charts display returns expressed as a percentage of the max risk for a given test run.

The results:
  1. The variability in normalized P&L per trade again increases as the delta of the short strike increases, and decreases with increasing wing width...this is a recurring pattern in the results
  2. The largest normalized P&L per trade was 4.7% for the DN (NA:NA), 25 point wings, 12 delta short strikes
  3. In general, the returns per trade increase with increasing loss taking %, and is more pronounced at 52 DTE than at 45 DTE.
  4. 17 variations had P&L per trade values of 4.0% or greater
    1. 11 of these 17 were delta neutral (DN) structures
    2. 16 of these 17 did not use a loss taking exit (loss taking % = NA)
    3.  8 of these 17 used a profit taking exit of 75%, while the other 9 did not use a profit taking exit (profit taking % = NA)
    4. Wing widths and short strike deltas for these 17 spanned all of the possible test values
  5. The 52 DTE ICs have larger P&L per trade readings than the 38 DTE ICs
    1. 2.33% / SD 0.88% VS avg 1.88% / SD 0.75%
  6. The 52 DTE ICs have slightly larger P&L per trade readings than the 45 DTE ICs
    1. 2.33% / SD 0.88% VS avg 2.23% / sd 0.87%
(click to enlarge)


Win Rate

The win rate trends appear fairly consistent across the DTEs tested so far:
  1. In general, win rates tend to increase as wing widths increase
  2. Win rates tend to increase as the delta of the short strikes decreases
  3. The top win rate was 96%, and was associated with these strategies:
    1. DN (NA:50), wing width 75, 8 delta
    2. ST (NA:50), wing width 75, 8 delta
  4. The top 29 strategies all had win rates of 91% or better. 
    1. Of these 29, 16 took profits at 50%
    2. Of these 29, 28 did not use loss exits (they exited at 2 DTE; loss taking % = NA)
    3. Of these 29, 23 had short strike deltas of 8
    4. Of these 29, wing widths and IC structures varied
  5. The strategies with the top win rates also had some of the largest single losses...as you'd expect for strategies not using loss exits...and this is consistent across the DTEs tested
  6. The win rates for the 52 DTE ICs were slightly better than the win rates for the 45 DTE ICs
(click to enlarge)


Largest Loss

The next charts show the normalized largest loss for each of the test runs  These largest losses are expressed as a percentage of the max risk for all of the 200+ trades in each test run.

The results:
  1. The largest loss percentage increases with increasing loss taking level
  2. 39 strategy variations had largest loss readings of 95% or greater
    1. 36 carried trades to 2 DTE and did not use loss taking levels (loss taking % = NA)
    2. 3 used a loss taking level of 300%
    3. All wing widths, short strike deltas, and structures (ST, DN, EL) were present in these 39 strategy variations
    4. The worst 18 had wing widths of 25 points
  3. The top 28 smallest losses all used a loss taking level of 100
  4. The top 12 smallest losses had short strike deltas of 8
  5. The top 6 smallest losses had wing widths of 75 points 
  6. The top 3 smallest losses were:
    1. DN (100:50), 75 point wings, 8 delta -> 13% loss
    2. EL (100:50), 75 point wings, 8 delta -> 14% loss
    3. ST (100:50), 75 point wings, 8 delta ->14% loss
(click to enlarge)


Profit Factor

The profit factor results are listed below:
  1. 31 strategy variations had profit factors of 2.0 or greater
    1. 29 of these 31 did not use a loss taking exit (loss taking % = NA)
    2. 19 of these 31 used the delta neutral structure (DN)
    3. 22 of these 31 had short strike deltas of 8
  2. The top five performers were:
    1. DN (NA:NA), 25 point wings, 8 delta -> profit factor of 2.9 (win rate 90%)
    2. DN (NA:NA), 75 point wings, 8 delta -> profit factor of 2.9 (win rate 92%)
    3. DN (NA:75), 25 point wings, 8 delta -> profit factor of 2.8 (win rate 92%)
    4. DN (NA:NA), 50 point wings, 8 delta -> profit factor of 2.7 (win rate 91%)
    5. DN (NA:50), 25 point wings, 8 delta -> profit factor of 2.7 (win rate 95%)
  3. These top performers also had some of the largest single losses due to not implementing loss taking exits
(click to enlarge)


Average DIT For Winning Trades

This metric was derived by averaging all of the DIT for all of the winning trades in a test run. Adding a DIT exit to your profit and loss exits is worth considering.

The trends associated with this metric are consistent with the prior DTE test runs:
  1. As short strike deltas increase, trade duration increases
  2. As profit taking level increases, trade duration increases
  3. The 50% profit taking level should have you out of your trade between 17 and 29 days for a 52 DTE IC
  4. The smallest winning trade DIT of 17 was associated with 8 delta short strikes, 25 point wings, profit taking at 50%, loss taking at 100%, and the EL structure.  The same configuration but using either the ST or DN structures yielded a an average DIT for winning trades of 18
(click to enlarge)


The results from using monthly trade initiation is similar to the results from weekly trade initiation.  I will not publish a part 2 for the 52 DTE IC tests since the difference in results between these two data sets is minimal.


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2 comments:

Jason Williams said...

Hi Dave,

As others have commented, very interesting work. Thanks for sharing your research with the trading community. Will you be making the data output from your backtest runs available at some point?

Jason.

Dave R. said...

Thanks Jason. No plan to make the data available.

Thanks,
Dave

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