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Thursday, June 22, 2017

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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Wednesday, June 21, 2017

Weekly Trade Summary: June 11 - June 17

No trading activity last week, just one trade expired for a small profit (June 16 expiration). The trades associated with the June 16 butterfly are shown below:
  • Original Trade Entry: April 3 - BWB on the Jun 16 expiration (post)
(click to enlarge)
  •  Adjustment: May 18 - moved upper longs on the Jun 16 expiration (post)
(click to enlarge)

I currently have 5 open trades, with expirations in June (1), July (2), and Aug(1):

(click to enlarge)

Total defined risk for these trades is at 23.6% of the account net liquidation value.

27 trades have been closed this year...15 wins and 12 losses. Return on the account for the year is at 2.6%...not happy with that number!  Total win rate is at 56%.  The win rate on the core trades is at 65% and at the very low end of the expected range. Not happy with the core trade win rate either!  Of the 4 open trades, 3 currently have a positive P&L.

Broken wing butterflies are really struggling lately and not performing as well as last year. I will be digging into the iron condor backtest results a bit more over the next few weeks to see how well they have performed in 2017.

Next week I will adjust the upside long puts on the two July expiration trades, and will likely add another BWB.


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Saturday, June 10, 2017

Weekly Trade Summary: June 04 - June 10

Last week I entered one, reduced size, SPX broken wing butterfly (BWB) on the Aug 11 expiration. This trade is shown below:

(click to enlarge)

I currently have 5 open trades, with expirations in June (2), July (2), and Aug(1):

(click to enlarge)

Total defined risk for these trades is at 31.9% of the account net liquidation value.

26 trades have been closed this year...14 wins and 12 losses. Return on the account for the year is at 2.4%...not happy with that number!  Total win rate is at 54%.  The win rate on the core trades is at 64% and at the very low end of the expected range. Not happy with the core trade win rate either!  Of the 5 open trades, 2 currently have a positive P&L.

Broken wing butterflies are really struggling lately and not performing as well as last year. I will be digging into the iron condor backtest results a bit more over the next few weeks to see how well they have performed in 2017.

Next week I will adjust the upside long puts on the two July expiration trades, and will likely add another BWB.


Follow my blog by email, RSS feed or Twitter (@DTRTrading).  All options are available on the top of the right hand navigation column under the headings "Subscribe To RSS Feed", "Follow By Email", and "Twitter"