Iron Condor Results Summary - Part 6 - IC Returns vs Initial Conditions Correlation

In the last article, we looked at correlations between Iron Condor returns and Iron Condor structures / trade management. Specifically, we started with the following list of areas to investigate:

1. Correlation between Iron Condor strategy structure / management and result metrics
2. Which result metrics most influence equity curve shape
3. Correlation between result metrics
4. Correlation between initial trade conditions and trade outcome based on strategy variation

In the last article we looked at items 1 and 2, and in this article we will look at items 3 and 4. We will start with the correlation between result metrics. For reviewing the correlation numbers, I'll use the following guidelines:

• -0.5 to -1.0 or +0.5 to +1.0: strong correlation
• -0.3 to -0.5 or +0.3 to + 0.5: moderate correlation
• -0.1 to -0.3 or +0.1 to +0.3: weak correlation
• -0.1 to +0.1: no correlation

While there is not 100% agreement on these levels across experts, these levels are fairly close to the common ranges listed in a number of statistics articles and books.


3. Correlation Between Result Metrics
The correlation matrices below show the results for all 3024 strategy variations, and also the subset of 1512 strategy variations that just contain profit targets and stops. There isn't any surprising information in these two matrices. The strong correlations in the tables are exactly where you would expect strong correlations to exist.

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4. Correlation Between Initial Trade Conditions and Returns
This is the most interesting topic. I've analyzed if there is any relationship between the conditions at trade entry and the P&L for a trade. For initial conditions, I used the following indicator values from the day a trade was initiated:

• IV Correlation: average implied volatility (IV) of the at the money (ATM) call and put
• VIX Correlation: VIX
• Skew 10: skew calculation based on 10 delta and 50 delta calls and puts (see note below)
• Skew 25: skew calculation based on 25 delta and 50 delta calls and puts (see note below)
• Skew 40: skew calculation based on 40 delta and 50 delta calls and puts (see note below)
• Put Slope: indicator based on IV of 10 puts at various deltas (8, 12, 16, 20, 25, 30, ... , 50)
• Slope(50-12): indicator based on slope of IVs at 12 delta and 50 delta
• Slope(50-30): indicator based on slope of IVs at 30 delta and 50 delta
• Credit: credit received per trade
• Above/Below MA(50): whether the SPX is above/below it's MA(50) (-1, 0, +1)
• Above/Below MA(200): whether the SPX is above/below it's MA(200) (-1, 0, +1)
• ATR-50: indicator based on the number of ATRs the SPX is above/below it's MA(50)
• ATR-200: indicator based on the number of ATRs the SPX is above/below it's MA(200)

Note: skew calculation based on Mixon paper: What Does Implied Volatility Skew Measure?

The 25th percentile, mean, and 75th percentile values for each of these indicators at 80 DTE is displayed in the table below. This will give you an idea of the distribution of the indicator values between January, 2007 and September, 2016.

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The correlation between returns and these indicators is shown in correlation tables below. Each table is for a specific DTE, short strike delta, wing width, stop loss, and profit target. Each table also includes the three Iron Condor starting structures (DN - delta neutral, EL - extra long put, and ST - standard balanced). Each row corresponds to a particular wing width, and each column corresponds to a particular stop loss level. My biggest take away was that there was either weak correlation or no correlation between indicator values at trade initiation and the final trade results.

The nine correlation tables below are for the 80 DTE Iron Condor variations with 8 delta short strikes. Across these tables, there were only 11 values of 0.2 / 20% or greater. 7 of these values occurred with the DN structure. 4 of these 11 values were associated with the VIX. Overall, though, any correlation of returns with initial conditions was weak for these trade variations.

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The nine correlation tables below are for the 80 DTE Iron Condor variations with 12 delta short strikes. Across these tables, there were only 41 values of 0.2 / 20% or greater. A much larger number than for the variations with 8 delta short strikes. 17 of these values occurred with the EL structure, 15 with the ST structure. 14 of these 41 values were associated with the Slope(50-12) indicator, and 10 with the Credit. Again, overall, any correlation of returns with initial conditions was weak for these trade variations.

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For the sake of completeness, the indicator values and correlations at 66 DTE are included below. There are six correlation tables for the 66 DTE Iron Condor variations with 12 delta short strikes. Across these tables, there were only 21 values of 0.2 / 20% or greater. 9 of these values occurred with the ST structure. 10 of these 21 values were associated with the Skew 40 indicator, and 6 with the ATR-50 indicator. Incidentally, the Skew 40 indicator also had one correlation value that hit 0.3. Regardless, any correlation of returns with initial conditions was also weak for these trade variations.

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I think the big take away from this correlation analysis is that the market conditions at trade initiation, specifically indicator readings, have almost no ability to predict the final returns for these Iron Condors. So, don't overthink your entries.

I'm still reflecting on a quote from Euan Sinclair on the Talton Capital Management blog and how it relates to these results:

"always use the simplest method possible. Trading is a business. Problems are to be solved, not treated as sources of amusement or intellectual challenges. Brute force is often a perfectly acceptable technique."

I think the correlation results for these simple Iron Condors fall under the category of "brute force is often a perfectly acceptable technique." Decent results are possible with static profit targets and static stop loss levels. Spend your time managing your trades, not overthinking your entries.


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Iron Condor Results Summary - Part 5 - IC Structure vs Metrics Correlation

In the last article, posted way back in August, I looked at the Iron Condor structures that appeared to perform the best for each of the seven metrics I tracked. Recall that I tested 3024 different Iron Condor strategy variations over the period from January 2007 through September 2016. This testing generated more than 600,000 Iron Condor trades. The past articles can be found at:

• Iron Condor Results Summary - Part 1
• Iron Condor Results Summary - Part 2 - Loss Levels
• Iron Condor Results Summary - Part 3 - 2017 Results
• Iron Condor Results Summary - Part 4 - Top Performers By Metric

Background
After writing those four articles, I was a bit disappointed with the results. In Part 3, I looked at three strategy variations that appeared to be some of the strongest based on the results in Part 1 and Part 2. These variations did not have the equity curves that I was anticipating. In Part 4, I ranked the 3024 different Iron Condor strategy variations by seven metrics in order to create a composite rank for each of variation. I then looked at the top scoring variation for each of the seven metrics, while also noting that variation's composite rank. These top performing strategy variations were a bit disappointing as well.

My next step was to identify four "families" of Iron Condor strategies that had some of the best composite rank scores. Those Iron Condor "families" included:

• 80 DTE, 25 point wings, 8 delta short strikes
• 80 DTE, 25 point wings, 12 delta short strikes
• 80 DTE, 50 point wings, 16 delta short strikes
• 66 DTE, 25 point wings, 12 delta short strikes

For these "families" I looked at all of the combinations of profit targets, and stop loss for each of the different starting structures (DN, EL, ST). I tweeted the results from this analysis starting September 16 and running through October 11. Quite a few of these variations looked promising.


Correlations
Since that time, I've been looking more closely at a number of features related to the result metrics, including:

1. Correlation between Iron Condor strategy structure / management and result metrics
2. Which result metrics most influence equity curve shape
3. Correlation between result metrics
4. Correlation between initial trade conditions and trade outcome based on strategy variation

1. Correlation Between Iron Condor Structure and Metrics
Let's take a quick look at the results from bullet one above, the correlation between Iron Condor strategy structure / management and result metrics. The correlation matrices below show the results for all 3024 strategy variations, and also the subset of 1512 strategy variations that just contain profit targets and stops.

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A few points to note from the correlation matrices:

• P&L / Trade vs DTE:
  The trades entered at higher DTE (i..e 80), generated greater returns per trade. You'd expect this, since we have more days of theta generation. Assuming we have two variations, with the only difference being DTE, you'd expect the higher DTE trade to generate a greater return since its DIT will typically be greater.


• P&L / Trade vs Short Delta:
  Higher delta short strikes generate greater returns per trade than lower delta short strikes. For example, a variation with 20 delta short strikes will typically generate greater P&L / trade than a similar variation with 8 delta short strikes.


• P&L / Trade vs Risk (stop loss):
Trades managed with larger risk / stops (i.e. 300% or NA) generated greater returns per trade than those managed with lower risk. With larger stops, you give the market more "room to run" inside the structure of the Iron Condor.


• Win % vs Short Delta:
As the delta of the short strike decreases, Win % increases. For example, a variation with an 8 delta short strike would tend to have a higher win rate than a similar variation with a 12 delta short strike.


• Win % vs Risk (stop loss):
The Win % is strongly correlated with Risk / stop level. Higher stop loss levels (i.e. 300% or NA) are associated with higher Win % numbers.


• Win % vs Reward (profit target):
The Win % is negatively correlated with Reward / profit target. Variations with lower profit targets (i.e. 50%) have higher Win % numbers than variations with higher profit targets.


• Largest Loss vs Wing Width:
This one is less obvious due to the way I measured Largest Loss. The larger the Wing Width, the smaller the Largest Loss. Fore example, a variation with a Wing Width of 75 would tend to have smaller losses (in terms of % of max risk) than a similar variation with 25 point wings.


• Largest Loss vs Short Delta:
Again, this is less obvious due to the way I recorded Largest Loss. The larger the Short Delta, the larger the Largest Loss. A variation with short strikes at 8 delta would tend to have smaller losses (in terms of % of max risk) than a similar variation with short strikes at 20 delta.


• Largest Loss vs Risk (stop loss):
The larger the Risk / stop loss, the larger the Largest Loss. For example, a variation with a 300% stop would tend to have larger losses than a similar variation with a 100% stop loss.


• P&L / Day vs Short Delta:
The smaller the short strike delta, the smaller the P&L per Day. For example, a variation with short deltas at 8 would then to generate less profit per day than a similar variation with shorts at 20 delta.


• P&L / Day vs Reward (profit target):
The lower the Reward / profit target, the higher the P&L per Day. For example, a variation with a profit target of 50% would tend to generate more profit per day than a similar variation with a profit target of 75%.

I'm not sure there is anything too surprising in the above correlations. Most of us would have assumed that these relationships existed, but it's nice to quantify the correlations. Also note what did not show much of a correlation:

• DTE: no significant correlation with Win%, Largest Loss, or P&L / Day
• Wing Width: no significant correlation with P&L / Trade, Win %, or P&L / Day
• Type: very minimal correlation between P&L / Day and the ST initial starting structure
• Risk (stop loss): minimal correlation between P&L / Day and stop loss level, with a larger stop generating slightly more P&L / day
• Reward (profit target): no significant correlation with P&L / Trade, or Largest Loss

2. Metrics Influencing Equity Curve Shape

Now let's move on to bullet 2 in the list above...the result metrics that most influence equity curve shape. This again shouldn't be a big surprise. A variation with a high Win % and low Largest Loss will have the smoothest equity curve. A variation with a low Win % will be more "jagged", with the size of the drops being related to the Largest Loss number.

Let's now find some examples of variations with smooth equity curves. We need variations with a high Win% and low Largest Loss number.

A high Win % is correlated with low deltas, high risk / stops, and low reward / profit targets. An example would be an Iron Condor with 8 delta shorts, a stop at 300% or NA, and a profit target of 50%.

A small Largest Loss number is correlated with large wing widths, low deltas, and low risk / stops. The last one is at odds with our Win % requirements. An example of a variation that meets this requirement would be an Iron Condor with 75 point wings, 8 delta shorts, and a stop at 100%.

For the smoothest equity curve, we should be looking at Iron Condors with 50 to 75 point wings, 8 to 12 delta shorts, stops in the 200% to 300% range, and a profit target of 50%.

We'll look at bullets three, and possibly four, in the next article. Also, my plan is to try to close out this Iron Condor series by the end of the year, and move on to other analysis...if all goes well.


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Iron Condor Results Summary - Part 4 - Top Performers By Metric

In this article we will look at a subset of the 3024 iron condor strategy variations that were tested between January 2007 and September 2016. Specifically, we will look at the 1512 iron condor strategy variations that used both stop losses and profit targets. Out of these 1512 variations we will look at the top performers in terms of the following metrics:

1. P&L / Trade (total return)
2. Largest Loss % (looking for the smallest value)
3. P&L / Day
4. Win Rate
5. Profit Factor
6. Sortino Ratio
7. Shortest time in trade for winning trades (in terms of % of DTE)

The top scoring iron condor strategy variations for each of these seven categories are listed below. For each metric, the metric value is listed first, followed by the details of the iron condor strategy variation that generated that value, followed by win rates, and finally the strategy score as described in the last article here.

1. P&L / Trade (9.1%): 
• 80 DTE
• ST structure
• 50 pt. wings
• 20 delta shorts 
• 300% stop loss / 75% profit taking
• 2007 - 2016 win rate: 79%
• 2016 - 2017 win rate: 75%
• Strategy score: 67
2. Largest Loss % (-11%): 
• 66 DTE
• DN structure
• 75 pt. wings
• 8 delta shorts
• 100% stop loss / 50% profit taking
• 2007 - 2016 win rate: 82%
• 2016 - 2017 win rate: 92%
• Strategy score: 72
3. P&L / Day (0.18%): 
• 45 DTE
• DN structure
• 25 pt. wings
• 20 delta shorts
• 300% stop loss / 50% profit taking
• 2007 - 2016 win rate: 86%
• 2016 - 2017 win rate: 75%
• Strategy score: 74
4. Win Rate (96%): 
• 80 DTE
• ST structure
• 25 pt. wings
• 8 delta shorts
• 300% stop loss / 50% profit taking
• 2007 - 2016 win rate: 96%
• 2016 - 2017 win rate: 83%
• Strategy score: 90
5. Profit Factor (4.5%): 
• 80 DTE
• ST structure
• 25 pt. wings
• 8 delta shorts
• 300% stop loss / 50% profit taking
• 2007 - 2016 win rate: 96%
• 2016 - 2017 win rate: 83%
• Strategy score: 90
6. Sortino Ratio (0.25): 
• 80 DTE
• DN structure
• 50 pt. wings
• 8 delta shorts
• 100% stop loss / 75% profit taking
• 2007 - 2016 win rate: 77%
• 2016 - 2017 win rate: 75%
• Strategy score: 69
7. %DTE (30%): 
• 80 DTE
• EL structure
• 25 pt. wings
• 8 delta shorts
• 100% stop loss / 50% profit taking
• 2007 - 2016 win rate: 79%
• 2016 - 2017 win rate: 67%
• Strategy score: 74

Out of these seven iron condor strategy variations, there was one duplicate...the strategy that generated the top win rate was also the strategy that generated the top profit factor. Now, lets look at the equity curves for these six strategy variations. Note, for reference, an SPX chart is included below the equity curve chart.

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The two iron condor strategy variations using 20 delta short strikes had the highest returns, but also the least smooth equity curves. The strategy variation with the highest win rate, had the third highest returns on this chart, but has been under performing in 2017.

The return distribution for these monthly trades for the initial test range (January 2007 through September 2016) is shown in the table below.

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The strategy variation with the shortest time in trade, also had the smallest absolute loss, but not the smallest loss as a percentage of capital at risk. This table doesn't provide any new information, but does provide some data driving the shapes of the equity curves shown above.

Now let's take a look at the returns for the one year period running from July 2016 expiration through the June 2017 expiration.

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During this recent one year period, the win rates and returns for these iron condor strategy variations (except for one!) have lagged their historical averages.

The one strategy variation that bucked this under performance trend was the one with the smallest "Largest Loss" number...the 66 DTE, DN structure, 75 pt. wing, 8 delta short iron condor with a 100% stop loss and a 50% profit taking level. This strategy had a 25.2% return during this most recent one year test period, with a win rate of 92%. Historically, this strategy returned 18% per year, with a win rate of 82%. Note, this is the strategy with the solid red equity curve above.

The other strategy variation that was closest to it's historical metrics was the one with the highest Sortino Ratio...the 80 DTE, DN structure, 50 pt. wing, 8 delta short iron condor with a 100% stop loss and a 75% profit taking level. This strategy had a 20.1% return during this most recent one year test period, with a win rate of 75%. Historically, this strategy returned 32% per year, with a win rate of 77%. Note, this is the strategy with the red dashed equity curve above.

The two better preforming strategy variations during this recent one year period were both delta neutral (DN) structures.

In the next article, we'll look at a few of the higher scoring iron condors. These tended to be initiated at 80 DTE, with short strike deltas at either 8 or 12.


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Iron Condor Results Summary - Part 3 - 2017 Results

In this article we'll look more deeply at the following iron condor (IC) strategy variations:

1. 38 DTE, 25 pt. wings, 20 delta shorts, 100% stop loss, 50% profit taking
2. 80 DTE, 25 pt. wings, 20 delta shorts, 100% stop loss, 50% profit taking
3. 80 DTE, 75 pt. wings, 12 delta shorts, 200% stop loss, 50% profit taking

These strategy variations appeared to be the strongest based on their metrics, and the stability of their metrics. A summary of all of the articles in this series can be found here.

Recall, that in this series of IC articles we looked at three different starting structures (see introduction):

1. Standard (ST): equal number of call spreads and put spreads
2. Delta Neutral (DN): fewer call spreads than put spreads ... can better withstand up moves
3. Extra Long Put (EL): same as ST, but with one extra long put ... can better withstand down moves

In the sections below, we'll look at how these three structures (ST, DN, EL) perform relative to each other in each of the three strategy variations listed at the top of this page.

Lastly, in the prior articles in this series, I  used data from trades running from the January 2007 expiration through the September 2016 expiration.  In this article I have expanded the results to include trades from the January 2007 expiration through the June 2017 expiration.


IC Strategy 1  (38 DTE, 25 pt. wings, 20 delta shorts, 100% stop loss, 50% profit taking)

The equity curves for the three structures, executing trades only using the monthly options, are shown below.

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The equity curves for the standard (ST) and delta neutral (DN) look better than the extra long put structure, with the DN looking the best. Neither the DN or ST structures really started performing well until January 2012. Overall, these equity curves at 38 DTE are pretty jagged.

The returns for each of these structures over the last 12 months of backtests are shown in the tables below.

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The July 2016 expiration hit the DN and ST structures pretty hard, but the EL structure made money during that expiration. The V bottom at the end of June triggered stop loss exits on the DN and ST structures.

The December 2016 expiration was the next losing trade, with upside stop losses being triggered (DN 8-Dec-2016, EL 25-Nov-2016, ST 7-Dec-2016). The smallest loss on this expiration occurred with the EL structure.

The March 2017 expiration was again the result of upside stop losses being triggered (DN 23-Feb-2017, EL 15-Feb-2017, ST 15-Feb-2017). The smallest loss on this expiration occurred with the DN structured.

The highest total returns for this 12 month period were associated with the EL structure, with second place going to the ST structure.

The metrics for each of the three structures are shown in the table below. There are three major groupings in this table, with each grouping containing the results for a specific structure (DN, EL, ST). For each structure, there are three rows of metrics organized as follows:

1. First row - results from trades on weekly expirations from Jan 2007 through Sep 2016
2. Second row - results from trades on weekly expirations from Jan 2007 through June 2017
3. Third row - results from trades on monthly expirations from Jan 2007 through June 2017

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In general, the metrics are pretty stable across the different time periods and frequencies. Metrics for the last 12 months were:

1. DN - win rate: 75%; average p&l/trade: 1.3%
2. EL - win rate: 83%; average p&l/trade: 6.3%
3. ST - win rate: 75%; average p&l/trade: 3.5%

IC Strategy 2  (80 DTE, 25 pt. wings, 20 delta shorts, 100% stop loss, 50% profit taking)

The equity curves for the three structures, executing trades only using the monthly options, are shown below.

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None of these equity curves look great, but the DN equity curve looks the best and has been in an uptrend since March 2009. As with the 38 DTE strategies presented first, these 80 DTE variations have fairly jagged equity curves.

The returns for each of these structures over the last 12 months of backtests are shown in the tables below.

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The trade on the September 2016 expiration was a loser for both the EL and ST structures. Upside stop losses were triggered on these trades on 8-Jul-2016 and 18-Jul-2016 respectively.

The January 2017 expiration was a loser across all three structures. Upside stop losses were triggered on all of these structures on the following dates: 1) DN 6-Jan-2017, 2) EL 21-Nov-2016, and 3) ST 7-Dec-2016.

The February 2017 expiration was a loser for the EL and ST structures. Upside stop losses were triggered on these trades on 13-Dec-2016 and 10-Feb-2017 respectively.

The last losing trades occurred on the April 2017 expiration for both the EL and ST structures. Upside stop losses were triggered on these trades on 15-Feb-2017 and 24-Feb-2017 respectively.

All of the losses on these 80 DTE trades occurred due to upside moves. Not surprisingly, the DN structure performed the best during the last year since it better handles upside moves.

The metrics for each of the three structures are shown in the table below. As mentioned above, this table first groups the metrics by structure (DN, EL, ST), and then by time period / frequency.

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The metrics for the DN and EL structures were fairly consistent across time periods and frequency. The ST structure was not as stable, specifically with its P&L/trade numbers. The Jan-2007 through Sep-2016 period had the highest returns, and these return numbers dropped significantly when the period was expanded to Jan-2007 through Jun-2017. Trading this structure on a monthly cycle reduced the per trade returns even more. Metrics for the last 12 months were:

1. DN - win rate: 92%; average p&l/trade: 9.2%
2. EL - win rate: 67%; average p&l/trade: 0.4%
3. ST - win rate: 67%; average p&l/trade: 0.4%

IC Strategy 3  (80 DTE, 75 pt. wings, 12 delta shorts, 200% stop loss, 50% profit taking)

The equity curves for the three structures, executing trades only using the monthly options, are shown below.

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With the lower delta short strikes and larger stop loss, the equity curves for this family of strategies were generally smoother than the prior two families of strategies.  The equity curve for the DN structure appears to be the most consistent, but the curves for all of these structures have been flat to down for the last two years.

The returns for each of these structures over the last 12 months of backtests are shown in the tables below.

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The first losing trades occurred with the September 2016 expiration for the EL and ST structures. Upside stop losses were triggered on 14-Jul-2016, and 20-Jul-2016 respectively. This was a losing month with the other 80 DTE strategy for these structures as well.

The January 2017 expiration trades were losers for all three structures. Upside stop losses were triggered for all three structures: 1) DN 13-Dec-2016, 2) EL 8-Dec-2016, and 3) ST 9-Dec-2016.

The last losing trades occurred with the April 2017 expiration and were the result of upside stop losses being hit on the EL and ST structures. Both of these trades were exited on 1-Mar-2017.

All of the losses for these 80 DTE trades were again due to upside moves. The DN structure was the clear winner with the other two structures having negative returns for the last 12 month period.

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The metrics for the DN structure was fairly consistent across time periods and frequency. The EL and ST structures were not as stable, specifically with their P&L/trade numbers. The Jan-2007 through Sep-2016 period had the highest returns, and these return numbers dropped when the period was expanded to Jan-2007 through June-2017. Trading this structure on a monthly cycle reduced the per trade returns even more. Metrics for the last 12 months were:

1. DN - win rate: 92%; average p&l/trade: 3.0%
2. EL - win rate: 75%; average p&l/trade: -2.7%
3. ST - win rate: 75%; average p&l/trade: -2.8%

Summary

I didn't really like the performance of these three families of strategies, and was a bit disappointed with their equity curves. After looking at this data, I decided to look at all 3024 strategy variations again and rank them.

I created a composite score for each of the 3024 strategy variations by equal weighting 7 metrics:

1. Avg. P&L / trade
2. Biggest Loss
3. Avg. P&L / day
4. Win %
5. Sortino Ratio
6. Profit Factor
7. Avg DIT Winner (%DTE). 

Each strategy ended up with an integer score from 2 to 92, with the possible range being 0 to 100. Using this approach, many strategies ended up having the same score. The scores of the strategy variations covered in this article were:

1. 38 DTE, 25 pt. wings, 20 delta shorts, 100% stop loss, 50% profit taking
1. DN: 70
2. EL: 43
3. ST: 60
2. 80 DTE, 25 pt. wings, 20 delta shorts, 100% stop loss, 50% profit taking
1. DN: 62
2. EL: 36
3. ST: 73
3. 80 DTE, 75 pt. wings, 12 delta shorts, 200% stop loss, 50% profit taking
1. DN: 81
2. EL: 81
3. ST: 83

Out of the 3024 strategy variations tested, only 1512 used both stop losses and profit targets. Out of these 1512 strategy variations, only 54 have a score of 80 or greater. In the next article, we'll try to find some better performing strategy variations.


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Iron Condor Results Summary - Part 2 - Loss Levels

In the last article we looked at the backtest results from 600,912 iron condor trades entered between January 2007 and September 2016. The focus in that article was on win rate and normalized P&L per day for each of the 3024 variations tested.  Recall that we looked at combinations of:

• Trade entry dates based on days to expiration (DTE)
• Iron condor wing widths
• Iron condor short strike position based on delta
• Iron condor structures (standard balanced (ST), extra long put (EL), and delta neutral (DN))
• Stop loss as a percentage of credit received (risk)
• Profit target as a percentage of credit received (reward)

In this article we will look at a subset of those 3024 iron condor variations...the 2016 iron condor variations that used a profit target. Most traders don't want to carry their trades to expiration, but instead want to exit based on predefined profit targets and stop loss levels.

This article will look at several metrics in those 2016 iron condor variations, and group them by stop loss level. Many traders select strategies based on the amount of capital at risk, and a stop loss level can help define this amount. This article is meant to: a) help identify the optimal strategy variations based on stop loss level, and b) help identify the overall top performing strategy variations.


Stop Loss - 100% of credit received

• 100% Stop Loss - Top 10 Strategy Variations By Metric

At this stop loss level, the trades entered at shorter DTE (specifically 38 DTE) dominate the top 10 average normalized P&L per day readings. This trend is visible even in the top 50 strategy variations at this stop loss level. The strongest combination to maximize P&L per day with a 100% stop loss level was 38 DTE, 25 point wings, 20 delta short strikes, standard structure (ST), with profit taking at 50%.

P&L Per Day - Top 10 Variations 

To maximize trade returns at this stop loss level, you'd look to initiate your trade between 73 and 80 DTE, with 25 point wings, with 20 delta short strikes, using the standard balanced IC structure (ST), with profit taking at between 50% and 75%.

P&L Per Trade - Top 10 Variations

Looking at the top 10 profit factors at this stop loss level sees another shift in the top performing strategy variations. The top profit factors were still associated with the 73 to 80 DTE starting range, but now we see the top variations having 50 point wings, with 8 delta short strikes, using the delta neutral (DN) IC structure, with profit taking leaning towards the 50% level.  The DN structure still dominates as we expand results to look at the top 25. It's also worth noticing that these combinations also have some of the highest Sortino ratios at this stop loss level.

Profit Factor - Top 10 Variations

The top 10 win rates at the 100% stop loss level were associated with strategy variations with short strikes at 8 delta and profit taking at 50%. These top variations also tended to have wing widths in the 50 to 75 point range, and also leaned toward delta neutral (DN) IC structures.  These top performing variations started anywhere from 59 to 80 DTE.

Win Rate - Top 10 Variations

• 100% Stop Loss - Bottom 10 Strategy Variations By Metric

In contrast to the top 10 P&L per day strategy variations, the bottom 10 used the extra long put (EL) IC structure, with mid range starting DTE (45 - 59).

P&L Per Day - Bottom 10 Variations

The bottom 10 P&L per trade values were associated with mid range starting DTE (45 - 59), short strike deltas in the 8 - 12 range, and the extra long put (EL) IC structure.

P&L Per Trade - Bottom 10 Variations

The bottom 10 profit factors were also associated with strategy variations starting in the low to mid range DTE (38 - 66), with 25 point wings, 20 delta short strikes, and the extra long put (EL) IC structure.

Profit Factor - Bottom 10 Variations

At the 100% stop loss level, we see the bottom 10 strategy variations using 25 to 50 point wings, with 20 delta short strikes, using the extra long put (EL) IC structure, and taking profits at 75%.

Win Rate - Bottom 10 Variations

• 100 % Stop Loss Summary

At the 100% stop loss level there were several strategy variations that work well, but these three stood out:

1. 38 DTE, 25 pt. wings, 20 delta shorts, ST structure, 100% stop loss, 50% profit taking
2. 80 DTE, 25 pt. wings, 20 delta shorts, ST structure, 100% stop loss, 50% profit taking
3. 80 DTE, 50 pt. wings, 8 delta shorts, DN structure, 100% stop loss, 50% profit taking

Stop Loss - 200% of credit received

• 200% Stop Loss - Top 10 Strategy Variations By Metric

As we move to the 200% stop loss level, the 38 DTE trades are no longer leading in the P&L per day metric.  The top 10 readings were dominated by trades initiated at 45 DTE, 25 point wings, 20 delta short strikes, using the standard balanced (ST) IC structure, with profit taking at 50%.

P&L Per Day - Top 10 Variations

The top 10 P&L per trade readings at this stop loss level were associated with strategy variations starting at 80 DTE, with 25 - 50 point wings, with 20 delta short strikes, using the standard balanced (ST) IC structure, with profit taking between 50% and 75%.

P&L Per Trade - Top 10 Variations

At this stop loss level, the top 10 profit factor readings were associated with strategy variations staring at 80 DTE, with 50 to 75 point wings, with 8 - 12 delta short strikes, and profit taking at 50%. There was not a clear pattern of IC structure out performance.

Profit Factor - Top 10 Variations

The top 10 win rates were dominated by trades starting at 80 DTE, 75 point wing widths, 8 delta short strikes, and profit taking at the 50% level.  The two top performing strategy structures were the extra long put (EL) structure, but following these top two positions, there was not a strong winner based on structure.

Win Rate - Top 10 Variations

• 200% Stop Loss - Bottom 10 Strategy Variations By Metric

The bottom 10 P&L per day readings were again dominated by the extra long put (EL) structure with mid range DTE values of 52 to 66.  The wing width and short strike delta pattern present in the bottom ten variations did not continue when I looked at the bottom 50 performers. There was also no pattern present in profit taking level.

P&L Per Day - Bottom 10 Variations 

At the 200% stop loss level, the worst performing P&L per trade readings were associated with strategy variations starting between 38 and 59 DTE, with 8 delta short strikes, using the extra long put (EL) structure, and taking profits at 50%.

P&L Per Trade - Bottom 10 Variations

The lowest 10 profit factor values were associated with strategy variations starting between 38 and 59 DTE, with 25 point wings, with 20 delta short strikes, using the extra long put (EL) structure, and taking profits at 75%.

Profit Factor - Bottom 10 Variations

For the bottom 10 win rate values at the 200% stop loss level, we see the trend continue. The lowest readings are associated with strategy variations starting between 38 and 66 DTE, with 25 point wings, 20 delta short strikes, and profit taking at 75%.

Win Rate - Bottom 10 Variations

• 200 % Stop Loss Summary

There were several decent strategies at the 200% stop loss level, but these stood out:

1. 45 DTE, 25 pt. wings, 20 delta shorts, ST structure, 200% stop loss, 50% profit taking
2. 80 DTE, 25 pt. wings, 20 delta shorts, ST structure, 200% stop loss, 50% profit taking
3. 80 DTE, 75 pt. wings, 12 delta shorts, DN structure, 200% stop loss, 50% profit taking

Stop Loss - 300% of credit received

• 300% Stop Loss - Top 10 Strategy Variations By Metric

At the 300% stop loss level, we see both shorter term and longer term variations appear in the top 10 P&L per day readings.  The top variations were 80 DTE, with 25 to 50 point wings (leaning towards 25 points!), 16 to 20 delta short strikes, using the standard balanced (ST) IC structure, with profit taking at 50%.

P&L Per Day - Top 10 Variations 

The top 10 P&L per trade readings were associated with variations initiated at 80 DTE, with 25 to 50 point wings, 16 to 20 delta short strikes, using the standard balanced (ST) IC structure, with profit taking at 75%.

P&L Per Trade - Top 10 Variations 

The top 10 profit factors were all associated with variations initiated at 80 DTE.  Wing widths tended toward the 50 to 75 point range, with deltas between 8 and 12, and profit taking at 50%.  There was no clear winner in terms of structure, with ST and DN having the strongest showing.

Profit Factor - Top 10 Variations

The top 10 win rates were also strongly associated with trades starting at 80 DTE.  Expanding the results to the top 30 highlighted that the top variations used 75 point wings, with short strike deltas between 8 and 12, and profit taking at 50%.  All structures were about equally present in the to 30.

Win Rate - Top 10 Variations

• 300% Stop Loss - Bottom 10 Strategy Variations By Metric

The worst 10 performing variations were associated with low to mid starting DTE (38 - 66), 25 point wings, 16 to 20 delta short strikes, with the extra long put (EL) IC structure. 

P&L Per Day - Bottom 10 Variations 

The worst 10 P&L per trade numbers were associated with variations starting between 38 and 52 DTE, with 25 point wings, 8 to 12 delta short strikes, the extra long put (EL) IC structure, and profit taking at 50%. This pattern was present in the bottom 30 variations.

P&L Per Trade - Bottom 10 Variations 

The bottom 10 profit factor value were associated with low to mid starting DTE (38 - 66), 25 point wings, 20 delta short strikes, the extra long put (EL) IC structure, and profit taking at 50%.

Profit Factor - Bottom 10 Variations 

The worst 10 win rates were associated with low to mid DTE (38 - 66), 25 point wings, 20 delta short strikes, and profit taking at 75%.

Win Rate - Bottom 10 Variations

• 300 % Stop Loss Summary

At the 300% stop loss level there were several strategy variations that work well, including:

1. 80 DTE, 25 pt. wings, 8 delta shorts, ST structure, 300% stop loss, 50% profit taking
2. 80 DTE, 50 pt. wings, 16 delta shorts, ST structure, 300% stop loss, 75% profit taking
3. 80 DTE, 75 pt. wings, 12 delta shorts, DN structure, 300% stop loss, 50% profit taking

Stop Loss - NA - no stop loss

• No Stop Loss - Top 10 Strategy Variations By Metric

For variations not using a stop loss, the top 10 P&L per day readings were associated with strategies starting at 80 DTE, with 25 point wings, 16 to 20 delta short strikes, using the standard balanced (ST) IC structure, and taking profits at 50%.

P&L Per Day - Top 10 Variations

The top 10 P&L per trade readings were associated with 80 DTE trades, using 25 to 50 point wings, 20 delta short strikes, with the standard balanced (ST) IC structure, and profit taking leaning toward 75%.

P&L Per Trade - Top 10 Variations

The top 10 profit factor readings were also associated with strategies starting at 80 DTE, with 8 delta short strikes, using the delta neutral (DN) IC structure, and profit taking at 50%.  The top 30 had all wing widths present in approximately equal numbers.

Profit Factor - Top 10 Variations

The top 10 win rates were associated with strategies starting at 80 DTE, using 75 point wings, with 8 delta short strikes, leaning towards the delta neutral (DN) IC structure, and profit taking at 50%.

Win Rate - Top 10 Variations

• No Stop Loss - Bottom 10 Strategy Variations By Metric

The bottom 10 strategy variations in terms of P&L per day readings were associated with trades starting at 38 DTE, 25 point wings, using the extra long put (EL) IC structure.  There was no trend in short strike deltas and profit taking level.

P&L Per Day - Bottom 10 Variations

The bottom 10 P&L per trade readings were associated with trades starting at 38 DTE, 25 point wings, 8 to 12 delta short strikes, using the extra long put (EL) IC structure, and profit taking at 50%.

P&L Per Trade - Bottom 10 Variations

The worst 10 profit factors were also associated with trades starting in lower DTE range of 38 to 45 DTE, 25 point wing widths, and the extra long put (EL) IC structure. Short strike deltas were leaning towards the upper end of 16 to 20, and profit taking level was leaning towards 75%.

Profit Factor - Bottom 10 Variations

The lowest 10 win rates were associated with low to mid DTE levels of 38 to 52 DTE, 25 point wings, 20 delta short strikes, and the 75% profit taking level.  

Win Rate - Bottom 10 Variations

• No Stop Loss Summary

The top performing strategies not using a stop loss included:

1. 80 DTE, 25 pt. wings, 20 delta shorts, ST structure, no stop loss, 50% profit taking
2. 80 DTE, 75 pt. wings, 8 delta shorts, DN structure, no stop loss, 50% profit taking

Summary

This was a fairly long article, but hopefully I've highlighted a strategy variation or two that you'd be comfortable trading...or modifying to suit your style. In the analysis above, it was clear that there were strategy variations at every stop loss level that were trade-able. Here are a few points that I noticed:

• Normalized Average P&L Per Day

The top 10 P&L per day readings were about the same across the four different stop loss levels. As stop loss level increased, the required DTE also increased for these top P&L per day readings.  At the 100% stop loss level, there were a number of variations starting at 38 DTE, while at the 300% and no stop loss levels, the top variations tended towards 80 DTE.

At the lower stop loss levels, the best P&L per day numbers were associated with the 20 delta short strikes.  As the stop loss level increased, the top strategy variations started to include all of the different short strikes (8, 12, 16, and 20). 

Lastly, the best P&L per day numbers at the 100% stop loss level had the lowest win rates, but the smallest largest loss numbers.  As stop loss level increased, the win rate increased and the largest loss also increased.

• Normalized Average P&L Per Trade

As stop loss level increased, the top P&L per trade readings also increased.  Win rates and profit factors also tended to increase with increasing P&L per trade readings.

Not surprisingly, the top P&L per trade readings were nearly all associated with strategies starting at 80 DTE, with 20 delta short strikes, using the standard balanced (ST) IC structure.

• Profit Factor

As stop loss level increased, the top 10 profit factors also increased.  Win rate also increased with increasing profit factors.

• Win Rate

As stop loss level increased, the top win rates also increased.  The top win rates were associated with strategies starting at 80 DTE, with 75 point wings, 8 delta short strikes, delta neutral (DN) IC structures, with profit taking at 50%.

The top win rates at the 100% stop loss level were lower (in the 80% range), but had some of the smallest largest loss numbers.  As win rate increased with stop loss level, largest loss numbers also increased (along with P&L per trade, P&L per day, and profit factor). 

• Largest Loss

The smallest largest loss numbers tended to be associated with wing widths in the 50 to 75 point range, with 8 delta shorts.  The delta neutral (DN) structures had the smallest loss numbers at the low stop loss values, and the extra long put (EL) structures had the smallest loss numbers where no stop loss was used.

With no stop loss, the 80 DTE, 25 point wing, 8 delta short strike, EL, profit taking at 50% looks very interesting: largest loss is 62% of credit received, 99% win rate, 4.8% return per trade, and 30 DIT.

• Sortino Ratio

Across stop loss levels, the highest Sortino Ratios were associated with trades starting at 80 DTE, 50 point wings, and profit taking at 75%.  At lower stop loss levels, the highest Sortinos were associated with 8 delta short strikes, with the 12 to 16 delta range dominating as stop loss level increased.

In the next article, I will look more deeply at the following strategy variations and how they are impacted by the three different IC structures:

1. 38 DTE, 25 pt. wings, 20 delta shorts, 100% stop loss, 50% profit taking
2. 80 DTE, 25 pt. wings, 20 delta shorts, 100% stop loss, 50% profit taking
3. 80 DTE, 75 pt. wings, 12 delta shorts, 200% stop loss, 50% profit taking

I may analyze one additional strategy in the next article based on reader comments...so let me know if there is a variation in addition to the three above that you'd like me to review!

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