CustomMenu

Wednesday, December 31, 2014

Delta Neutral Iron Condor - Summary Statistics

In the next several posts, I am going to compare the results from the three different "no touch" Iron Condor (IC) trades that I have shown over the last few months.

In this post, we will look at the summary statistics for just the RUT and SPX delta neutral ICs.  The image below shows the summary statistics of the RUT delta neutral IC version for all of the days-to-expiration (DTE) and all of the short strike deltas shown on this blog.  The Sharpe Ratio and Sortino ratios are the best for the 66 DTE, 16 and 20 delta variations.


The next image shows the summary statistics for the SPX delta neutral IC version for all of the DTE, and all of the short strike deltas shown on this blog.  The Sharpe Ratio and Sortino ratios are the best for the 38 DTE, 12 and 16 delta variations.


The details associated with the prior two images can be found at the links below:
In the next post I will review the summary statistics for the extra long put, "no touch" IC trades.

If you don't want to miss my new blog posts, follow my blog either by email or by RSS feed.  Both options are free, and are available on the top of the right hand navigation column under the headings "Follow By Email" and "Subscribe To RSS Feed".  I follow blogs by RSS using Feedly, but any RSS reader will work.

Sunday, December 28, 2014

Extra Long Put Iron Condor - SPX - 80 DTE

In this article I will show the automated backtesting results for four variations of a 80 days-to-expiration (DTE) SPX extra-long-put "no touch" Iron Condor (IC).

With the extra-long-put "no touch" IC structure, the call credit spread will be composed of 10 longs and 10 shorts, and the put credit spread component will be composed of 11 longs and 10 shorts...10 credit spreads and an extra long.  See my post Thoughts on Options Strategy Backtests for some background on my testing approach.  The prior SPX extra-long-put "no touch" IC backtest result posts are here:
As with the prior backtests, the short strikes for both the call credit spreads and put credit spreads will be at approximately the same delta.  These backtests will be "no touch" tests, meaning there will be no adjustments during the trades.  The setup details are shown in the table below:


(1) The backtester will start looking for trades that meet the entry DTE requirement after this date
(2) The backtester will not take any trades that will have an exit DTE after this date
(3) Some trading platforms call 80 DTE, 78 DTE (e.g., TOS).  The OSB uses a DTE based on the number of days to the expiration date in the option code/opra code, which is a Saturday for indexes
(4) Some trading platforms call 8 DTE, 6 DTE (e.g., TOS)
(5) S&P 500 Index options
(6) Four 80 DTE extra-long-put "no-touch" iron condors will be tested with their short strikes at varying deltas (8, 12, 16, and 20)
(7) The distance between the short call and long call (also, the distance between the short and long puts).
(8) The call spreads will contain an equal number of long and short options.
(9) The there will be one additional long in the put spreads.

The equity curves for each of the four delta variations are shown in the graph below.  In addition to the equity curves, the ATM IV at trade initiation is also plotted (the average of the ATM call IV and ATM put IV).  Please note that the dates in the chart are expiration dates, not trade initiation or closing dates.  For example, the trade corresponding to the 04/21/2012 expiration was initiated on 02/01/2012 and closed on 04/13/2012.  In all of the charts below, I will show data for trades by their expiration date.

If I look at this same expiration date in the chart below, 04/21/2012, we can see that when the trade was initiated, the ATM IV was 17.  When the trade was closed, the cumulative non-compounded profit had grown to between $36.5k and $83.0k depending on the short delta of the variation of the strategy.


For these trades, the maximum reg-t margin requirement is between $21.0k and $23.8k assuming your brokerage only margins one side of your IC.  If you have portfolio margin, your requirement is somewhere around one-quarter to one-half the reg-t margin numbers.  The margin difference is related to the difference in the size of the credits received.  Higher delta equals larger credit; lower delta equals smaller credit.

In the table below are the standard trade metrics for the four ICs with different short strikes (8 delta, 12 delta, 16 delta, and 20 delta).  The Sharpe and Sortino ratios are again highest for the the 8 delta variation.


Similar to the other "no touch" trades tested, there are some big drawdowns in these trades because of the lack of adjustments.  The extra long put has helped reduce the size of the drawdowns, but only by a small amount. For example, the IC variation without the long put had drawdowns ranging from -63.4% to -93.7%. With the long put, the drawdowns now range from -38.1% to -84.5%.  As we've seen before, the number of winning trades increases as the size of the short deltas decreases..the further away from ATM, the higher the win rate.  The combination of shorter DTE and closeness of the short strikes makes the higher delta condors have a lower win rate.  The non-compounded AGR is greatest with the 8 delta variation.

In the heat maps, we can see the performance by expiration month of each of the individual trades of each of the four delta variations.  The 0% cells represent expiration months were no trade was initiated.  Some of these 0% cells are due to lack of data or bad prints on the trade entry day...leading the backtester to skip that month for testing. In these heat maps for each of the different delta trades, we can see the amount of red (relative size of the negative returns) increasing as the delta of the short strikes is increased...going from the top table to the bottom table in the four tables below.


The next four graphs show the P&L range for the four delta variations of this 80 DTE IC strategy.  These graphs are showing the open, which is the 0% level, the high (green bar), the low (red bar), and the value at trade close (the blue line).  Also, note that the months displayed on the horizontal axis are not displaying expiration dates even though the bars represent the ranges for trades by expiration month...this was done to reduce the number of axis labels on the graphs.

The top graph displays the P&L range for the 8 delta variation of the 80 DTE extra-long-put "no touch" IC.  You can see that when a trade closes profitably the range is mostly on the positive side of the graph.  You can also see the increase in P&L volatility as the delta increase from 8 to 20.


In the next few posts I will summarize the trade metrics and the no touch posts up to this point, in preparation for posting results for IC trades with adjustments.

If you don't want to miss my new blog posts, follow my blog either by email or by RSS feed.  Both options are free, and are available on the top of the right hand navigation column under the headings "Follow By Email" and "Subscribe To RSS Feed".  I follow blogs by RSS using Feedly, but any RSS reader will work.

Thursday, December 25, 2014

Extra Long Put Iron Condor - SPX - 66 DTE

In this article I will show the automated backtesting results for four variations of a 66 days-to-expiration (DTE) SPX extra-long-put "no touch" Iron Condor (IC).

With the extra-long-put "no touch" IC structure, the call credit spread will be composed of 10 longs and 10 shorts, and the put credit spread component will be composed of 11 longs and 10 shorts...10 credit spreads and an extra long.  See my post Thoughts on Options Strategy Backtests for some background on my testing approach.  The prior SPX extra-long-put "no touch" IC backtest result posts are here:
As with the prior backtests, the short strikes for both the call credit spreads and put credit spreads will be at approximately the same delta.  These backtests will be "no touch" tests, meaning there will be no adjustments during the trades.  The setup details are shown in the table below:


(1) The backtester will start looking for trades that meet the entry DTE requirement after this date
(2) The backtester will not take any trades that will have an exit DTE after this date
(3) Some trading platforms call 66 DTE, 64 DTE (e.g., TOS).  The OSB uses a DTE based on the number of days to the expiration date in the option code/opra code, which is a Saturday for indexes
(4) Some trading platforms call 8 DTE, 6 DTE (e.g., TOS)
(5) S&P 500 Index options
(6) Four 66 DTE extra-long-put "no-touch" iron condors will be tested with their short strikes at varying deltas (8, 12, 16, and 20)
(7) The distance between the short call and long call (also, the distance between the short and long puts).
(8) The call spreads will contain an equal number of long and short options.
(9) The there will be one additional long in the put spreads.

The equity curves for each of the four delta variations are shown in the graph below.  In addition to the equity curves, the ATM IV at trade initiation is also plotted (the average of the ATM call IV and ATM put IV).  Please note that the dates in the chart are expiration dates, not trade initiation or closing dates.  For example, the trade corresponding to the 03/17/2012 expiration was initiated on 01/11/2012 and closed on 03/09/2012.  In all of the charts below, I will show data for trades by their expiration date.

If we look at this same expiration date in the chart below, 03/17/2012, we can see that when the trade was initiated, the ATM IV was 19.  When the trade was closed, the cumulative non-compounded profit had grown to between $34.0k and $41.8k depending on the short delta of the variation of the strategy.


For these trades, the maximum reg-t margin requirement is between $21.1k and $24.2k assuming your brokerage only margins one side of your IC.  If you have portfolio margin, your requirement is somewhere around one-quarter to one-half the reg-t margin numbers.  The margin difference is related to the difference in the size of the credits received.  Higher delta equals larger credit; lower delta equals smaller credit.

In the table below are the standard trade metrics for the four ICs with different short strikes (8 delta, 12 delta, 16 delta, and 20 delta).  The Sharpe and Sortino ratios are the highest for the the 8 delta variation.


Similar to the other "no touch" trades tested, there are some big drawdowns in these trades because of the lack of adjustments.  The extra long put has helped reduce the size of the drawdowns a small amount though.  For example, the IC variation without the long put had drawdowns ranging from -84.1% to -92.4%. With the long put, the drawdowns now range from -75.6% to -85.8%...this structure is an improvement...but not a large improvment.  As we've seen before, the number of winning trades increases as the size of the short deltas decreases..the further away from ATM, the higher the win rate.  The combination of shorter DTE and closeness of the short strikes makes the higher delta condors have a lower win rate.  The non-compounded AGR is about the same for the 8, 12, and 16 delta variations.

In the heat maps, we can see the performance by expiration month of each of the individual trades of each of the four delta variations.  The 0% cells represent expiration months were no trade was initiated.  Some of these 0% cells are due to lack of data or bad prints on the trade entry day...leading the backtester to skip that month for testing. In these heat maps for each of the different delta trades, we can see the amount of red (relative size of the negative returns) increasing as the delta of the short strikes is increased...going from the top table to the bottom table in the four tables below.


The next four graphs show the P&L range for the four delta variations of this 66 DTE IC strategy.  These graphs are showing the open, which is the 0% level, the high (green bar), the low (red bar), and the value at trade close (the blue line).  Also, note that the months displayed on the horizontal axis are not displaying expiration dates even though the bars represent the ranges for trades by expiration month...this was done to reduce the number of axis labels on the graphs.

The top graph displays the P&L range for the 8 delta variation of the 66 DTE extra-long-put "no touch" IC.  You can see that when a trade closes profitably the range is mostly on the positive side of the graph.  You can also see the increase in P&L volatility as the delta increase from 8 to 20.


In the next post I will move on to the 80 DTE extra-long-put "no touch" SPX IC.

If you don't want to miss my new blog posts, follow my blog either by email or by RSS feed.  Both options are free, and are available on the top of the right hand navigation column under the headings "Follow By Email" and "Subscribe To RSS Feed".  I follow blogs by RSS using Feedly, but any RSS reader will work.

Sunday, December 21, 2014

Extra Long Put Iron Condor - SPX - 52 DTE

In this article I will show the automated backtesting results for four variations of a 52 days-to-expiration (DTE) SPX extra-long-put "no touch" Iron Condor (IC).  I am back in the States for two weeks and will try to catch up on a few things, including a bit more blogging...

With the extra-long-put "no touch" IC structure, the call credit spread will be composed of 10 longs and 10 shorts, and the put credit spread component will be composed of 11 longs and 10 shorts...10 credit spreads and an extra long.  See my post Thoughts on Options Strategy Backtests for some background on my testing approach.  The prior SPX extra-long-put "no touch" IC backtest result post is here:
As with the prior backtests, the short strikes for both the call credit spreads and put credit spreads will be at approximately the same delta.  These backtests will be "no touch" tests, meaning there will be no adjustments during the trades.  The setup details are shown in the table below:


(1) The backtester will start looking for trades that meet the entry DTE requirement after this date
(2) The backtester will not take any trades that will have an exit DTE after this date
(3) Some trading platforms call 52 DTE, 50 DTE (e.g., TOS).  The OSB uses a DTE based on the number of days to the expiration date in the option code/opra code, which is a Saturday for indexes
(4) Some trading platforms call 8 DTE, 6 DTE (e.g., TOS)
(5) S&P 500 Index options
(6) Four 52 DTE extra-long-put "no-touch" iron condors will be tested with their short strikes at varying deltas (8, 12, 16, and 20)
(7) The distance between the short call and long call (also, the distance between the short and long puts).
(8) The call spreads will contain an equal number of long and short options.
(9) The there will be one additional long in the put spreads.

The equity curves for each of the four delta variations are shown in the graph below.  In addition to the equity curves, the ATM IV at trade initiation is also plotted (the average of the ATM call IV and ATM put IV).  Please note that the dates in the chart are expiration dates, not trade initiation or closing dates.  For example, the trade corresponding to the 03/17/2012 expiration was initiated on 01/25/2012 and closed on 03/09/2012.  In all of the charts below, I will show data for trades by their expiration date.

If I look at this same expiration date in the chart below, 03/17/2012, we can see that when the trade was initiated, the ATM IV was 16.  When the trade was closed, the cumulative non-compounded profit had grown to between $47.5k and $65.8k depending on the short delta of the variation of the strategy.


For these trades, the maximum reg-t margin requirement is between $22.6k and $28.2k assuming your brokerage only margins one side of your IC.  If you have portfolio margin, your requirement is somewhere around one-quarter to one-half the reg-t margin numbers.  The 8 delta trade would have had the highest margin requirement, except for the fact that the 20 delta variation had one bad trade entry which made its max margin $28.2k.  Without this outlier the margin range would have been between $22.3k and $24.1k.  The margin difference is related to the difference in the size of the credits received.  Higher delta equals larger credit; lower delta equals smaller credit.

In the table below are the standard trade metrics for the four ICs with different short strikes (8 delta, 12 delta, 16 delta, and 20 delta).  The Sharpe and Sortino ratios are the highest for the the 8 delta variation.


Similar to the other "no touch" trades tested, there are some big drawdowns in these trades because of the lack of adjustments.  The extra long put has helped reduce the size of the drawdowns though. For example, the IC variation without the long put had drawdowns ranging from -65.2% to -91.9%. With the long put, the drawdowns now range from -46.2% to -61.9%.  As we've seen before, the number of winning trades increases as the size of the short deltas decreases..the further away from ATM, the higher the win rate.  The combination of shorter DTE and closeness of the short strikes makes the higher delta condors have a lower win rate.  The non-compounded AGR is greatest with the 8 and 12 delta variations.

In the heat maps, we can see the performance by expiration month of each of the individual trades of each of the four delta variations.  The 0% cells represent expiration months were no trade was initiated.  Some of these 0% cells are due to lack of data or bad prints on the trade entry day...leading the backtester to skip that month for testing. In these heat maps for each of the different delta trades, we can see the amount of red (relative size of the negative returns) increasing as the delta of the short strikes is increased...going from the top table to the bottom table in the four tables below.


The next four graphs show the P&L range for the four delta variations of this 52 DTE IC strategy.  These graphs are showing the open, which is the 0% level, the high (green bar), the low (red bar), and the value at trade close (the blue line).  Also, note that the months displayed on the horizontal axis are not displaying expiration dates even though the bars represent the ranges for trades by expiration month...this was done to reduce the number of axis labels on the graphs.

The top graph displays the P&L range for the 8 delta variation of the 52 DTE extra-long-put "no touch" IC.  You can see that when a trade closes profitably the range is mostly on the positive side of the graph.  You can also see the increase in P&L volatility as the delta increase from 8 to 20.


In the next post I will move on to the 66 DTE extra-long-put "no touch" SPX IC.

If you don't want to miss my new blog posts, follow my blog either by email or by RSS feed.  Both options are free, and are available on the top of the right hand navigation column under the headings "Follow By Email" and "Subscribe To RSS Feed".  I follow blogs by RSS using Feedly, but any RSS reader will work.

Wednesday, December 10, 2014

Extra Long Put Iron Condor - SPX - 38 DTE

In this article I will show the automated backtesting results for four variations of a 38 days-to-expiration (DTE) SPX extra-long-put "no touch" Iron Condor (IC).  I am still in Brasilia, Brazil and feel I have a minor triumph today by completing a mid-week post while still swamped with client work! Now on to the strategy results....

With the extra-long-put "no touch" IC structure, the call credit spread will be composed of 10 longs and 10 shorts, and the put credit spread component will be composed of 11 longs and 10 shorts...10 put credit spreads and an extra put long.  See my post Thoughts on Options Strategy Backtests for some background on my testing approach.

As with the prior backtests, the short strikes for both the call credit spreads and put credit spreads will be at approximately the same delta.  These backtests will be "no touch" tests, meaning there will be no adjustments during the trades.  The setup details are shown in the table below:


(1) The backtester will start looking for trades that meet the entry DTE requirement after this date
(2) The backtester will not take any trades that will have an exit DTE after this date
(3) Some trading platforms call 38 DTE, 36 DTE (e.g., TOS).  The OSB uses a DTE based on the number of days to the expiration date in the option code/opra code, which is a Saturday for indexes
(4) Some trading platforms call 8 DTE, 6 DTE (e.g., TOS)
(5) S&P 500 Index options
(6) Four 38 DTE extra-long-put "no-touch" iron condors will be tested with their short strikes at varying deltas (8, 12, 16, and 20)
(7) The distance between the short call and long call (also, the distance between the short and long puts).
(8) The call spreads will contain an equal number of long and short options.
(9) The there will be one additional long in the put spreads.

The equity curves for each of the four delta variations are shown in the graph below.  In addition to the equity curves, the ATM IV at trade initiation is also plotted (the average of the ATM call IV and ATM put IV).  Please note that the dates in the chart are expiration dates, not trade initiation or closing dates.  For example, the trade corresponding to the 02/18/2012 expiration was initiated on 01/11/2012 and closed on 02/10/2012.  In all of the charts below, I will show data for trades by their expiration date.

If I look at this same expiration date in the chart below, 02/18/2012, we can see that when the trade was initiated, the ATM IV was 18.  When the trade was closed, the cumulative non-compounded profit had grown to between $38.1k and $53.2k depending on the short delta of the variation of the strategy.


For these trades, the maximum reg-t margin requirement is between $22.3k and $24.1k assuming your brokerage only margins one side of your IC.  If you have portfolio margin, your requirement is somewhere around one-quarter to one-half the reg-t margin numbers.  The 8 delta trade had the highest margin requirement, while the 20 delta trade had the lowest margin requirement.  The margin difference is related to the difference in the size of the credits received.  Higher delta equals larger credit; lower delta equals smaller credit.

In the table below are the standard trade metrics for the four ICs with different short strikes (8 delta, 12 delta, 16 delta, and 20 delta).  The Sharpe and Sortino ratios are the highest for the the 12 delta variation, followed next by the 16 delta variation.


Similar to the other "no touch" trades tested, there are some big drawdowns in these trades because of the lack of adjustments.  The extra long put has helped reduce the size of the drawdowns though.  For example, the IC variation without the long put had drawdowns ranging from -78.8% to -93.3%.  With the long put, the drawdowns now range from -56.1% to -75.9%.  As we've seen before, the number of winning trades increases as the size of the short deltas decreases..the further away from ATM, the higher the win rate.  The combination of shorter DTE and closeness of the short strikes makes the higher delta condors have a lower win rate.  The non-compounded AGR is greatest with the 16 and 12 delta variations.

In the heat maps, we can see the performance by expiration month of each of the individual trades of each of the four delta variations.  The 0% cells represent expiration months were no trade was initiated.  Some of these 0% cells are due to lack of data or bad prints on the trade entry day...leading the backtester to skip that month for testing. In these heat maps for each of the different delta trades, we can see the amount of red (relative size of the negative returns) increasing as the delta of the short strikes is increased...going from the top table to the bottom table in the four tables below.


The next four graphs show the P&L range for the four delta variations of this 38 DTE IC strategy.  These graphs are showing the open, which is the 0% level, the high (green bar), the low (red bar), and the value at trade close (the blue line).  Also, note that the months displayed on the horizontal axis are not displaying expiration dates even though the bars represent the ranges for trades by expiration month...this was done to reduce the number of axis labels on the graphs.

The top graph displays the P&L range for the 8 delta variation of the 38 DTE extra-long-put "no touch" IC.  You can see that when a trade closes profitably the range is mostly on the positive side of the graph.  You can also see the increase in P&L volatility as the delta increase from 8 to 20.


In the next post I will move on to the 52 DTE extra-long-put "no touch" SPX IC.

If you don't want to miss my new blog posts, follow my blog either by email or by RSS feed.  Both options are free, and are available on the top of the right hand navigation column under the headings "Follow By Email" and "Subscribe To RSS Feed".  I follow blogs by RSS using Feedly, but any RSS reader will work.

Sunday, December 7, 2014

Extra Long Put Iron Condor - RUT - 80 DTE

In this article I will show the automated backtesting results for four variations of an 80 days-to-expiration (DTE) RUT extra-long-put "no touch" IC.  I am writing this post in Brasilia, Brazil today (rather than the States).  I was hoping to write twice a week during this trip, but I've barely been able to write once each week...so much for best laid plans!  Now on to the strategy results....

With the extra-long-put "no touch" IC structure, the call credit spread will be composed of 10 longs and 10 shorts, and the put credit spread component will be composed of 11 longs and 10 shorts...10 put credit spreads and an extra long put.  See my post Thoughts on Options Strategy Backtests for some background on my testing approach.  The prior RUT extra-long-put "no touch" IC backtest result post is here:
As with the prior backtests, the short strikes for both the call credit spreads and put credit spreads will be at approximately the same delta.  These backtests will be "no touch" tests, meaning there will be no adjustments during the trades.  The setup details are shown in the table below:


(1) The backtester will start looking for trades that meet the entry DTE requirement after this date
(2) The backtester will not take any trades that will have an exit DTE after this date
(3) Some trading platforms call 80 DTE, 78 DTE (e.g., TOS).  The OSB uses a DTE based on the number of days to the expiration date in the option code/opra code, which is a Saturday for indexes
(4) Some trading platforms call 8 DTE, 6 DTE (e.g., TOS)
(5) Russell 2000 Index options
(6) Four 80 DTE extra-long-put "no-touch" iron condors will be tested with their short strikes at varying deltas (8, 12, 16, and 20)
(7) The distance between the short call and long call (also, the distance between the short and long puts).
(8) The call spreads will contain an equal number of long and short options.
(9) The there will be one additional long in the put spreads.

The equity curves for each of the four delta variations are shown in the graph below.  In addition to the equity curves, the ATM IV at trade initiation is also plotted (the average of the ATM call IV and ATM put IV).  Please note that the dates in the chart are expiration dates, not trade initiation or closing dates.  For example, the trade corresponding to the 02/18/2012 expiration was initiated on 11/30/2011 and closed on 02/10/2012.  In all of the charts below, I will show data for trades by their expiration date.

If I look at this same expiration date in the chart below, 02/18/2012, we can see that when the trade was initiated, the ATM IV was 35.  When the trade was closed, the cumulative non-compounded profit had grown to between $51.1k and $66.1k depending on the short delta of the variation of the strategy.


For these trades, the maximum reg-t margin requirement is between $15.3k and $18.3k assuming your brokerage only margins one side of your IC.  If you have portfolio margin, your requirement is somewhere around one-quarter to one-half the reg-t margin numbers.  The 8 delta trade had the highest margin requirement, while the 20 delta trade had the lowest margin requirement.  The margin difference is related to the difference in the size of the credits received.  Higher delta equals larger credit; lower delta equals smaller credit.

In the table below are the standard trade metrics for the four ICs with different short strikes (8 delta, 12 delta, 16 delta, and 20 delta).  The Sharpe and Sortino ratios are the highest for the the 8 delta variation, which is the same pattern we noticed with the 66 DTE version.


Similar to the other "no touch" trades tested, there are some big drawdowns in these trades because of the lack of adjustments.  The extra long has helped with the drawdowns in the 8, 12, and 16 delta variations.  As we've seen before, the number of winning trades increases as the size of the short deltas decreases..the further away from ATM, the higher the win rate.  The combination of shorter DTE and closeness of the short strikes makes the higher delta condors have a lower win rate.  The non-compounded AGR is greatest with the 16 delta variation.

In the heat maps, we can see the performance by expiration month of each of the individual trades of each of the four delta variations.  The 0% cells represent expiration months were no trade was initiated.  Some of these 0% cells are due to lack of data or bad prints on the trade entry day...leading the backtester to skip that month for testing. In these heat maps for each of the different delta trades, we can see the amount of red (relative size of the negative returns) increasing as the delta of the short strikes is increased.



The next four graphs show the P&L range for the four delta variations of this 80 DTE IC strategy.  These graphs are showing the open, which is the 0% level, the high (green bar), the low (red bar), and the value at trade close (the blue line).  Also, note that the months displayed on the horizontal axis are not displaying expiration dates even though the bars represent the ranges for trades by expiration month...this was done to reduce the number of axis labels on the graphs.

The top graph displays the P&L range for the 8 delta variation of the 80 DTE extra-long-put "no touch" IC.  You can see that when a trade closes profitably the range is mostly on the positive side of the graph.  You can also see the increase in P&L volatility as the delta increase from 8 to 20.


In the next post I will move on to the 38 DTE extra-long-put "no touch" SPX IC.

On a side note, my friend Jared at QuantConnect just let me know that they are planning to open source their platform.  Read the blog post on their open source plans at:
http://www.quantconnect.com/blog/open-source-algorithmic-trading-platform/


If you don't want to miss my new blog posts, follow my blog either by email or by RSS feed.  Both options are free, and are available on the top of the right hand navigation column under the headings "Follow By Email" and "Subscribe To RSS Feed".  I follow blogs by RSS using Feedly, but any RSS reader will work.

Sunday, November 30, 2014

Extra Long Put Iron Condor - RUT - 66 DTE

In this article we will look at the automated backtesting results for four variations of a 66 days-to-expiration (DTE) RUT extra-long-put "no touch" IC.  With this structure, the call credit spread will be composed of 10 longs and 10 shorts, and the put credit spread component will be composed of 11 longs and 10 shorts...10 credit spreads and an extra long.  See my post Thoughts on Options Strategy Backtests for some background on my testing approach.  The prior RUT extra-long-put "no touch" IC backtest results posts are here:
As with the prior backtests, the short strikes for both the call credit spreads and put credit spreads will be at approximately the same delta.  These backtests will be "no touch" tests, meaning there will be no adjustments during the trades.  The setup details are shown in the table below:


(1) The backtester will start looking for trades that meet the entry DTE requirement after this date
(2) The backtester will not take any trades that will have an exit DTE after this date
(3) Some trading platforms call 66 DTE, 64 DTE (e.g., TOS).  The OSB uses a DTE based on the number of days to the expiration date in the option code/opra code, which is a Saturday for indexes
(4) Some trading platforms call 8 DTE, 6 DTE (e.g., TOS)
(5) Russell 2000 Index options
(6) Four 66 DTE extra-long-put "no-touch" iron condors will be tested with their short strikes at varying deltas (8, 12, 16, and 20)
(7) The distance between the short call and long call (also, the distance between the short and long puts).
(8) The call spreads will contain an equal number of long and short options.
(9) The there will be one additional long in the put spreads.

The equity curves for each of the four delta variations are shown in the graph below.  In addition to the equity curves, the ATM IV at trade initiation is also plotted (the average of the ATM call IV and ATM put IV).  Please note that the dates in the chart are expiration dates, not trade initiation or closing dates.  For example, the trade corresponding to the 03/17/2012 expiration was initiated on 01/11/2012 and closed on 03/09/2012.  In all of the charts below, I will show data for trades by their expiration date.

If I look at this same expiration date in the chart below, 03/17/2012, we can see that when the trade was initiated, the ATM IV was 27.  When the trade was closed, the cumulative non-compounded profit had grown to between $43.1k and $88.1k depending on the short delta of the variation of the strategy.


For these trades, the maximum reg-t margin requirement is between $15.7k and $18.6k assuming your brokerage only margins one side of your IC.  If you have portfolio margin, your requirement is somewhere around one-quarter to one-half the reg-t margin numbers.  The 8 delta trade had the highest margin requirement, while the 20 delta trade had the lowest margin requirement.  The margin difference is related to the difference in the size of the credits received.  Higher delta equals larger credit; lower delta equals smaller credit.

In the table below are the standard trade metrics for the four ICs with different short strikes (8 delta, 12 delta, 16 delta, and 20 delta).  The Sharpe and Sortino ratios are the highest for the the 16 delta variation.


Similar to the other "no touch" trades tested, there are some big drawdowns in these trades because of the lack of adjustments.  The extra long has helped with the drawdowns, but this DTE version is worse than the prior two versions.  As we've seen before, the number of winning trades increases as the size of the short deltas decreases..the further away from ATM, the higher the win rate.  The combination of shorter DTE and closeness of the short strikes makes the higher delta condors have a lower win rate.  The non-compounded AGR is greatest with the 20 delta variation...the variation with the worst drawdown and lowest win rate.

In the heat maps, we can see the performance by expiration month of each of the individual trades of each of the four delta variations.  The 0% cells represent expiration months were no trade was initiated.  Some of these 0% cells are due to lack of data or bad prints on the trade entry day...leading the backtester to skip that month for testing. In these heat maps for each of the different delta trades, we can see the amount of red (relative size of the negative returns) increasing as the delta of the short strikes is increased.


The next four graphs show the P&L range for the four delta variations of this 66 DTE IC strategy.  These graphs are showing the open, which is the 0% level, the high (green bar), the low (red bar), and the value at trade close (the blue line).  Also, note that the months displayed on the horizontal axis are not displaying expiration dates even though the bars represent the ranges for trades by expiration month...this was done to reduce the number of axis labels on the graphs.

The top graph displays the P&L range for the 8 delta variation of the 66 DTE extra-long-put "no touch" IC.  You can see that when a trade closes profitably the range is mostly on the positive side of the graph.  You can also see the increase in P&L volatility as the delta increase from 8 to 20.


In the next post I will move on to the 80 DTE extra-long-put "no touch" RUT IC.

If you don't want to miss my new blog posts, follow my blog either by email or by RSS feed.  Both options are free, and are available on the top of the right hand navigation column under the headings "Follow By Email" and "Subscribe To RSS Feed".  I follow blogs by RSS using Feedly, but any RSS reader will work.

Sunday, November 23, 2014

Extra Long Put Iron Condor - RUT - 52 DTE

In this article we will look at the automated backtesting results for four variations of a 52 days-to-expiration (DTE) RUT extra-long-put "no touch" IC.  With this structure, the call credit spread will be composed of 10 longs and 10 shorts, and the put credit spread component will be composed of 11 longs and 10 shorts...10 credit spreads and an extra long.  See my post Thoughts on Options Strategy Backtests for some background on my testing approach.  The prior RUT extra-long-put "no touch" IC backtest result post is here:
As with the prior backtests, the short strikes for both the call credit spreads and put credit spreads will be at approximately the same delta.  These backtests will be "no touch" tests, meaning there will be no adjustments during the trades.  The setup details are shown in the table below:


(1) The backtester will start looking for trades that meet the entry DTE requirement after this date
(2) The backtester will not take any trades that will have an exit DTE after this date
(3) Some trading platforms call 52 DTE, 50 DTE (e.g., TOS).  The OSB uses a DTE based on the number of days to the expiration date in the option code/opra code, which is a Saturday for indexes
(4) Some trading platforms call 8 DTE, 6 DTE (e.g., TOS)
(5) Russell 2000 Index options
(6) Four 52 DTE extra-long-put "no-touch" iron condors will be tested with their short strikes at varying deltas (8, 12, 16, and 20)
(7) The distance between the short call and long call (also, the distance between the short and long puts).
(8) The call spreads will contain an equal number of long and short options.
(9) The there will be one additional long in the put spreads.

The equity curves for each of the four delta variations are shown in the graph below.  In addition to the equity curves, the ATM IV at trade initiation is also plotted (the average of the ATM call IV and ATM put IV).  Please note that the dates in the chart are expiration dates, not trade initiation or closing dates.  For example, the trade corresponding to the 03/17/2012 expiration was initiated on 01/25/2012 and closed on 03/09/2012.  In all of the charts below, I will show data for trades by their expiration date.

If I look at this same expiration date in the chart below, 03/17/2012, we can see that when the trade was initiated, the ATM IV was 22.  When the trade was closed, the cumulative non-compounded profit had grown to between $47.7k and $60.2k depending on the short delta of the variation of the strategy.


For these trades, the maximum reg-t margin requirement is between $16.3k and $18.8k assuming your brokerage only margins one side of your IC.  If you have portfolio margin, your requirement is somewhere around one-quarter to one-half the reg-t margin numbers.  The 8 delta trade had the highest margin requirement, while the 20 delta trade had the lowest margin requirement.  The margin difference is related to the difference in the size of the credits received.  Higher delta equals larger credit; lower delta equals smaller credit.

In the table below are the standard trade metrics for the four ICs with different short strikes (8 delta, 12 delta, 16 delta, and 20 delta).  The Sharpe and Sortino ratios are the highest for the the 8 delta variation.


Similar to the other "no touch" trades tested, there are some big drawdowns in these trades because of the lack of adjustments.  As with the 38 DTE version, you will notice that the worst trades are not as bad as with the other IC's tested so far...the extra long has helped with the drawdowns.  As we've seen before, the number of winning trades increases as the size of the short deltas decreases..the further away from ATM, the higher the win rate.  The combination of shorter DTE and closeness of the short strikes makes the higher delta condors have a lower win rate.  The non-compounded AGR is greatest with the 16 and 20 delta variations.

In the heat maps, we can see the performance by expiration month of each of the individual trades of each of the four delta variations.  The 0% cells represent expiration months were no trade was initiated.  Some of these 0% cells are due to lack of data or bad prints on the trade entry day...leading the backtester to skip that month for testing. In these heat maps for each of the different delta trades, we can see the amount of red (relative size of the negative returns) increasing as the delta of the short strikes is increased.


The next four graphs show the P&L range for the four delta variations of this 52 DTE IC strategy.  These graphs are showing the open, which is the 0% level, the high (green bar), the low (red bar), and the value at trade close (the blue line).  Also, note that the months displayed on the horizontal axis are not displaying expiration dates even though the bars represent the ranges for trades by expiration month...this was done to reduce the number of axis labels on the graphs.

The top graph displays the P&L range for the 8 delta variation of the 52 DTE extra-long-put "no touch" IC.  Even with the short duration of these trades, you can see that when a trade closes profitably the range is mostly on the positive side of the graph.  You can also see the increase in P&L volatility as the delta increase from 8 to 20.


In the next post I will move on to the 66 DTE extra-long-put "no touch" RUT IC.

If you don't want to miss my new blog posts, follow my blog either by email or by RSS feed.  Both options are free, and are available on the top of the right hand navigation column under the headings "Follow By Email" and "Subscribe To RSS Feed".  I follow blogs by RSS using Feedly, but any RSS reader will work.

Tuesday, November 18, 2014

Extra Long Put Iron Condor - RUT - 38 DTE

In this new series of eight articles we will look at Iron Condors (IC) with one extra long put in the put credit spread component of the IC.  For example, the call credit spread will be composed of 10 longs and 10 shorts, and the put credit spread component will be composed of 11 longs and 10 shorts...10 credit spreads and an extra long.  This extra long should offer the trade some protection in a down turn.

In this article we will look at the automated backtesting results for four variations of a 38 days-to-expiration (DTE) RUT extra-long-put "no touch" IC.  See my post Thoughts on Options Strategy Backtests for some background on my testing approach.

As with the prior backtests, the short strikes for both the call credit spreads and put credit spreads will be at approximately the same delta.  These backtests will be "no touch" tests, meaning there will be no adjustments during the trades.  The setup details are shown in the table below:


(1) The backtester will start looking for trades that meet the entry DTE requirement after this date
(2) The backtester will not take any trades that will have an exit DTE after this date
(3) Some trading platforms call 38 DTE, 36 DTE (e.g., TOS).  The OSB uses a DTE based on the number of days to the expiration date in the option code/opra code, which is a Saturday for indexes
(4) Some trading platforms call 8 DTE, 6 DTE (e.g., TOS)
(5) Russell 2000 Index options
(6) Four 38 DTE extra-long-put "no-touch" iron condors will be tested with their short strikes at varying deltas (8, 12, 16, and 20)
(7) The distance between the short call and long call (also, the distance between the short and long puts).
(8) The call spreads will contain an equal number of long and short options.
(9) The there will be one additional long in the put spreads.

The equity curves for each of the four delta variations are shown in the graph below.  In addition to the equity curves, the ATM IV at trade initiation is also plotted (the average of the ATM call IV and ATM put IV).  Please note that the dates in the chart are expiration dates, not trade initiation or closing dates.  For example, the trade corresponding to the 04/21/2012 expiration was initiated on 03/14/2012 and closed on 04/13/2012.  In all of the charts below, I will show data for trades by their expiration date.

If I look at this same expiration date in the chart below, 04/21/2012, we can see that when the trade was initiated, the ATM IV was 22.  When the trade was closed, the cumulative non-compounded profit had grown to between $38.0k and $58.4k depending on the short delta of the variation of the strategy.


For these trades, the maximum reg-t margin requirement is between $16.7k and $18.9k assuming your brokerage only margins one side of your IC.  If you have portfolio margin, your requirement is somewhere around one-quarter to one-half the reg-t margin numbers.  The 8 delta trade had the highest margin requirement, while the 20 delta trade had the lowest margin requirement.  The margin difference is related to the difference in the size of the credits received.  Higher delta equals larger credit; lower delta equals smaller credit.

In the table below are the standard trade metrics for the four ICs with different short strikes (8 delta, 12 delta, 16 delta, and 20 delta).  The Sharpe and Sortino ratios are the highest for the 12 delta variation, with the 8 delta a very close second place.


Similar to the other "no touch" trades tested, there are some big drawdowns in these trades because of the lack of adjustments.  You will notice however, that the worst trades are not as bad as with the other IC's tested so far...the extra long has helped with the drawdowns.  As we've seen before, the number of winning trades increases as the size of the short deltas decreases..the further away from ATM, the higher the win rate.  The combination of shorter DTE and closeness of the short strikes makes the higher delta condors have a lower win rate.  The non-compounded AGR is greatest with the 12 and 16 delta variations.

In the heat maps, we can see the performance by expiration month of each of the individual trades of each of the four delta variations.  The 0% cells represent expiration months were no trade was initiated.  Some of these 0% cells are due to lack of data or bad prints on the trade entry day...leading the backtester to skip that month for testing. In these heat maps for each of the different delta trades, we can see the amount of red (relative size of the negative returns) increasing as the delta of the short strikes is increased.


The next four graphs show the P&L range for the four delta variations of this 38 DTE IC strategy.  These graphs are showing the open, which is the 0% level, the high (green bar), the low (red bar), and the value at trade close (the blue line).  Also, note that the months displayed on the horizontal axis are not displaying expiration dates even though the bars represent the ranges for trades by expiration month...this was done to reduce the number of axis labels on the graphs.

The top graph displays the P&L range for the 8 delta variation of the 38 DTE extra-long-put "no touch" IC.  Even with the short duration of these trades, you can see that when a trade closes profitably the range is mostly on the positive side of the graph.  You can also see the increase in P&L volatility as the delta increase from 8 to 20.


In the next post I will move on to the 52 DTE extra-long-put "no touch" RUT IC.

If you don't want to miss my new blog posts, follow my blog either by email or by RSS feed.  Both options are free, and are available on the top of the right hand navigation column under the headings "Follow By Email" and "Subscribe To RSS Feed".  I follow blogs by RSS using Feedly, but any RSS reader will work.

Sunday, November 9, 2014

Delta Neutral Iron Condor - SPX - 80 DTE

In this article we will look at the automated backtesting results for four variations of a 80 days-to-expiration (DTE) SPX delta neutral "no touch" Iron Condor (IC).  See my post Thoughts on Options Strategy Backtests for some background on my testing approach, and my other post Delta Neutral Iron Condor for more detail about the structure of this trade. The prior RUT delta neutral IC backtest results posts can be found at:
I am in Brazil right now, but will be flying back to the States on Friday.  I will be working with this client for the next several months, which will result in less frequent posting...I apologize in advance for the time between posts...

As with the prior backtests, the short strikes for both the call credit spreads and put credit spreads will be at approximately the same delta.  These backtests will be "no touch" tests, meaning there will be no adjustments during the trades  Lastly, these trades will be started with the position delta close to zero (delta neutral).  This will require the number of call credit spreads to be reduced until the position delta approaches zero.  The setup details are shown in the table below:


(1) The backtester will start looking for trades that meet the entry DTE requirement after this date
(2) The backtester will not take any trades that will have an exit DTE after this date
(3) Some trading platforms call 80 DTE, 78 DTE (e.g., TOS).  The OSB uses a DTE based on the number of days to the expiration date in the option code/opra code, which is a Saturday for indexes
(4) Some trading platforms call 8 DTE, 6 DTE (e.g., TOS)
(5) S&P 500 Index options
(6) Four 80 DTE delta neutral "no-touch" iron condors will be tested with their short strikes at varying deltas (8, 12, 16, and 20)
(7) The distance between the short call and long call (also, the distance between the short and long puts).
(8) The call spreads will contain an equal number of long and short options.  The quantity of call spreads at trade initiation will range from between 5 and 10.  The actual quantity selected by the backtester will result in a position delta that is close to 0.  For example 5 call spreads and 10 put spreads at initiation, or 6 call spreads and 10 put spreads at initiation, etc.

The equity curves for each of the four delta variations are shown in the graph below.  In addition to the equity curves, the ATM IV at trade initiation is also plotted (the average of the ATM call IV and ATM put IV).  Please note that the dates in the chart are expiration dates, not trade initiation or closing dates.  For example, the trade corresponding to the 06/16/2012 expiration was initiated on 03/28/2012 and closed on 06/08/2012.  In all of the charts below, I will show data for trades by their expiration date.

If I look at this same expiration date in the chart below, 06/16/2012, we can see that when the trade was initiated, the ATM IV was 15.  When the trade was closed, the cumulative non-compounded profit had grown to between $39.0k and $69.1k depending on the short delta of the variation of the strategy.


For these trades, the maximum reg-t margin requirement is between $21.1k and $30.5k assuming your brokerage only margins one side of your IC. If you have portfolio margin, your requirement is somewhere around one-quarter to one-half the reg-t margin numbers. The 16 delta trade had the highest margin requirement due to a bad trade entry. If this trade was ignored, the margin range would have been between $22.6k and $23.8k, with the 8 delta trade having the highest margin and the 20 delta trade having the lowest margin.

In the table below are the standard trade metrics for the four ICs with different short strikes (8 delta, 12 delta, 16 delta, and 20 delta).  The Sharpe and Sortino ratios are the highest for the 12 delta variation.


Similar to the other "no touch" trades tested, there are some big drawdowns in these trades because of the lack of adjustments.  The number of winning trades increases as the size of the short deltas decreases..the further away from ATM, the higher the win rate.  The combination of shorter DTE and closeness of the short strikes makes the higher delta condors have a lower win rate.  The non-compounded AGR decreases as the delta of the short strike decreases.

In the heat maps, we can see the performance by expiration month of each of the individual trades of each of the four delta variations.  The 0% cells represent expiration months were no trade was initiated.  Some of these 0% cells are due to lack of data or bad prints on the trade entry day...leading the backtester to skip that month for testing.  In these heat maps for each of the different delta trades, we can see the amount of red (relative size of the negative returns) increasing as the delta of the short strikes is increased.


The next four graphs show the P&L range for the four delta variations of this 80 DTE IC strategy.  These graphs show the open, which is the 0% level, the high (green bar), the low (red bar), and the value at trade close (the blue line).  Also, note that the months displayed on the horizontal axis are not displaying expiration dates even though the bars represent the ranges for trades by expiration month...this was done to reduce the number of axis labels on the graphs.

The top graph displays the P&L range for the 8 delta variation of the 80 DTE delta neutral "no touch" IC.  Even with the short duration of these trades, you can see that when a trade closes profitably the range is mostly on the positive side of the graph.  You can also see the increase in P&L volatility as the delta increase from 8 to 20.


In the next post I will move back to the original "no touch" RUT IC, but with an extra long put.  Because of the bull run starting in March 2009 this extra put will most likely detract from our P&L during this period, but may help during market drops...we'll find out!

If you don't want to miss my new blog posts, follow my blog either by email or by RSS feed.  Both options are free, and are available on the top of the right hand navigation column under the headings "Follow By Email" and "Subscribe To RSS Feed".  I follow blogs by RSS using Feedly, but any RSS reader will work.

Sunday, November 2, 2014

Delta Neutral Iron Condor - SPX - 66 DTE

In this article we will look at the automated backtesting results for four variations of a 66 days-to-expiration (DTE) SPX delta neutral "no touch" Iron Condor (IC).  See my post Thoughts on Options Strategy Backtests for some background on my testing approach, and my other post Delta Neutral Iron Condor for more detail about the structure of this trade. The prior RUT delta neutral IC backtest results posts can be found at:
I am flying to Brazil today, and will be out of town for a couple of weeks.  I will be working with this client for the next several months, which will result in less frequent posting...I apologize in advance for the time between posts...

As with the prior backtests, the short strikes for both the call credit spreads and put credit spreads will be at approximately the same delta.  These backtests will be "no touch" tests, meaning there will be no adjustments during the trades  Lastly, these trades will be started with the position delta close to zero (delta neutral).  This will require the number of call credit spreads to be reduced until the position delta approaches zero.  The setup details are shown in the table below:


(1) The backtester will start looking for trades that meet the entry DTE requirement after this date
(2) The backtester will not take any trades that will have an exit DTE after this date
(3) Some trading platforms call 66 DTE, 64 DTE (e.g., TOS).  The OSB uses a DTE based on the number of days to the expiration date in the option code/opra code, which is a Saturday for indexes
(4) Some trading platforms call 8 DTE, 6 DTE (e.g., TOS)
(5) S&P 500 Index options
(6) Four 66 DTE delta neutral "no-touch" iron condors will be tested with their short strikes at varying deltas (8, 12, 16, and 20)
(7) The distance between the short call and long call (also, the distance between the short and long puts).
(8) The call spreads will contain an equal number of long and short options.  The quantity of call spreads at trade initiation will range from between 5 and 10.  The actual quantity selected by the backtester will result in a position delta that is close to 0.  For example 5 call spreads and 10 put spreads at initiation, or 6 call spreads and 10 put spreads at initiation, etc.

The equity curves for each of the four delta variations are shown in the graph below.  In addition to the equity curves, the ATM IV at trade initiation is also plotted (the average of the ATM call IV and ATM put IV).  Please note that the dates in the chart are expiration dates, not trade initiation or closing dates.  For example, the trade corresponding to the 03/17/2012 expiration was initiated on 01/11/2012 and closed on 03/09/2012.  In all of the charts below, I will show data for trades by their expiration date.

If we look at this same expiration date in the chart below, 03/17/2012, we can see that when the trade was initiated, the ATM IV was 19.  When the trade was closed, the cumulative non-compounded profit had grown to between $22.6.7k and $46.0k depending on the short delta of the variation of the strategy.


For these trades, the maximum reg-t margin requirement is between $21.2k and $24.1k assuming your brokerage only margins one side of your IC. If you have portfolio margin, your requirement is somewhere around one-quarter to one-half the reg-t margin numbers. The 8 delta trade had the highest margin requirement, while the 20 delta trade had the lowest margin requirement. The margin difference is related to the difference in the size of the credits received. Higher delta equals larger credit; lower delta equals smaller credit.

In the table below are the standard trade metrics for the four ICs with different short strikes (8 delta, 12 delta, 16 delta, and 20 delta).  The Sharpe and Sortino ratios are the highest for the 12 delta variation.


Similar to the other "no touch" trades tested, there are some big drawdowns in these trades because of the lack of adjustments.  The number of winning trades increases as the size of the short deltas decreases..the further away from ATM, the higher the win rate.  The combination of shorter DTE and closeness of the short strikes makes the higher delta condors have a lower win rate.  The non-compounded AGR decreases as the delta of the short strike decreases.

In the heat maps, we can see the performance by expiration month of each of the individual trades of each of the four delta variations.  The 0% cells represent expiration months were no trade was initiated.  Some of these 0% cells are due to lack of data or bad prints on the trade entry day...leading the backtester to skip that month for testing.  In these heat maps for each of the different delta trades, we can see the amount of red (relative size of the negative returns) increasing as the delta of the short strikes is increased.


The next four graphs show the P&L range for the four delta variations of this 66 DTE IC strategy.  These graphs show the open, which is the 0% level, the high (green bar), the low (red bar), and the value at trade close (the blue line).  Also, note that the months displayed on the horizontal axis are not displaying expiration dates even though the bars represent the ranges for trades by expiration month...this was done to reduce the number of axis labels on the graphs.

The top graph displays the P&L range for the 8 delta variation of the 66 DTE delta neutral "no touch" IC.  Even with the short duration of these trades, you can see that when a trade closes profitably the range is mostly on the positive side of the graph.  You can also see the increase in P&L volatility as the delta increase from 8 to 20.


In the next post I will move on to the 80 DTE delta neutral "no touch" SPX IC.

If you don't want to miss my new blog posts, follow my blog either by email or by RSS feed.  Both options are free, and are available on the top of the right hand navigation column under the headings "Follow By Email" and "Subscribe To RSS Feed".  I follow blogs by RSS using Feedly, but any RSS reader will work.