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Tuesday, February 28, 2017

59 DTE Iron Condor Results Summary

This article reviews the backtest results of iron condors (IC) entered at 59 days to expiration (DTE). These tests covered 9 IC variations, with short strike deltas at four locations (8, 12, 16, 20), utilizing 12 exits.  In all, there were 432 test runs (9 variations x 4 deltas x 12 exits). Each test run executed approximately 200 SPX IC trades between the January 2007 expiration and the September 2016 expiration.  I used weekly options for this testing, so there were more than 12 trades per year.  In total, there were 84,996 total trades entered for the 59 DTE testing.

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

Normalized P&L per Day

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

The results:
  1. We continue to see more variability in P&L per day readings in the 25 point wing ICs, than in the larger wing width ICs
  2. Again, similar to the prior test runs, as the delta of the short strikes increases, the variability in the P&L per day readings increases
  3. The largest reading was 0.18%, which is the same as the largest reading for the 38 and 45 DTE ICs.  There was one strategy variation with a 0.18% value:
    1. ST (NA:50), 25 point wings, 16 delta
  4. The next best readings came in at 0.16% and 0.15% and were associated with five test runs: 
    1. EL (NA:50), 25 point wings, 16 delta  (0.16%)
    2. DN (NA:50), 50 point wings, 16 delta  (0.15%)
    3. ST (NA:50), 25 point wings, 20 delta  (0.15%)
    4. DN (NA:50), 50 point wings, 16 delta  (0.15%)
    5. ST (300:50), 25 point wings, 16 delta  (0.15%)
  5. 20 of the top 22 readings were associated with a profit taking level of 50%
    1. Of these 20 readings, 14 had short delta strikes of 16
(click to enlarge)


Normalized P&L per Trade

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

The results:
  1. The variability in normalized P&L per trade again increases as the delta of the short strike increases, and decreases with increasing wing width.
  2. In general, the returns per trade increase with increasing loss taking %, and this trend is significantly more pronounced than at 52 DTE.
  3. The largest normalized P&L per trade was 6.0% for two strategy variations:
    1. ST (NA:75), 25 point wings, 16 delta
    2. ST (NA:50), 25 point wings, 16 delta
  4. 22 variations had P&L per trade values of 5.0% or greater
    1. 21 of these 22 did not use a loss taking exit (loss taking % = NA)
    2. 14 of these 22 used a short strike delta of 16
    3. 12 of these 22 were delta neutral (DN) structures (9 were ST structures)
    4. 12 of these 22 used a profit taking exit of 75% (6 used a profit taking % = NA)
    5. Wing widths for these 22 spanned all of the possible test values
  5. The 59 DTE ICs have the largest P&L per trade readings, and largest standard deviations:
    1. 59 DTE; mean 2.75% / SD 1.20%
    2. 52 DTE: mean 2.33% / SD 0.88%
    3. 45 DTE: mean 2.23% / SD 0.87%
    4. 38 DTE: mean 1.88% / SD 0.75%
(click to enlarge)


Win Rate

The win rate trends appear fairly consistent across the DTEs tested so far:
  1. In general, win rates tend to increase as wing widths increase
  2. Win rates tend to increase as the delta of the short strikes decreases
  3. The top win rate was 96%, and was associated with three strategies:
    1. DN (NA:50), wing width 75, 8 delta
    2. ST (NA:50), wing width 75, 8 delta
    3. EL (NA:50), wing width 75, 8 delta
  4. The top 41 strategies all had win rates of 91% or better. 
    1. Of these 41, 28 took profits at 50%
    2. Of these 41, 35 did not use loss exits (they exited at 2 DTE; loss taking % = NA)
    3. Of these 41, 26 had short strike deltas of 8
    4. Wing widths and IC structures varied for these 41
  5. The strategies with the top win rates also had some of the largest single losses...and this is consistent across the DTEs tested
  6. The win rates for the 59 DTE ICs were slightly better than the win rates for the 52 DTE ICs
(click to enlarge)


Largest Loss

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

The results:
  1. Typically, the largest loss percentage increases with increasing loss taking level
  2. There were a number of variations where the largest loss was over 200% of the max risk.  This particular loss was due to bad data, rather than an actual loss of that size.
    1. In all, there were 27 variations impacted by this bad quote, which was associated with the 14-Nov-2014 expiration.  All of these trades should have exited with a max loss close to 100% somewhere between 10-Oct-2014 and 15-Oct-2014.
    2. By 15-Oct-2014, the market was below the long put of the put spread in these trades...the long put was at 1875 for the 25 point wing strategies.  The market low on 15-Oct-2014 was 1820, with a close at 1862.
  3. 72 strategy variations had largest loss readings of 95% or greater
    1. 58 had short strike deltas of 20, while the other 14 had short strike deltas of 16
    2. All wing widths, and structures (ST, DN, EL) were present in these 72 strategy variations
  4. 27 of the top 28 smallest losses used a loss taking level of 100
  5. 15 of the top 17 smallest losses had short strike deltas of 8
  6. The top 3 smallest losses were:
    1. DN (100:50), 75 point wings, 8 delta -> 14% loss  (win rate 82%)
    2. EL (100:50), 50 point wings, 8 delta -> 17% loss  (win rate 80%)
    3. EL (100:75), 50 point wings, 8 delta ->17% loss  (win rate 74%)
(click to enlarge)


Profit Factor

The profit factor results are listed below:
  1. Profit factors increase sharply for variations not using a loss taking % (loss taking % = NA)
  2. 62 strategy variations had profit factors of 2.0 or greater (double the number at 52 DTE!)
    1. 55 of these 62 did not use a loss taking exit (loss taking % = NA)
    2. 32 of these 62 used the delta neutral structure (DN)
    3. 31 of these 62 had short strike deltas of 8
  3. The top tree performers were:
    1. DN (NA:NA), 75 point wings, 8 delta -> profit factor of 3.5 (win rate 92%)
    2. DN (NA:NA), 50 point wings, 8 delta -> profit factor of 3.5 (win rate 90%)
    3. DN (NA:75), 50 point wings, 8 delta -> profit factor of 3.4 (win rate 92%)
  4. These top performers had largest losses of approximately -90% due to not implementing loss taking exits
(click to enlarge)


Average DIT For Winning Trades

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

The trends associated with this metric are consistent with the prior DTE test runs:
  1. As short strike deltas increase, trade duration increases
  2. As profit taking level increases, trade duration increases
  3. The 50% profit taking level should have you out of your trade between 19 and 34 days for a 59 DTE IC, depending on short strike delta
  4. The smallest winning trade DIT of 19 was associated with 8 delta short strikes, 25 point wings, profit taking at 50%, loss taking at 100%, and the EL structure.  The same configuration but using either the ST or DN structures yielded a an average DIT for winning trades of 21
    1. These were the same trade structures that had the smallest winning trade DIT at 52 DTE
(click to enlarge)


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Saturday, February 25, 2017

Weekly Trade Summary: Feb 19-Feb 25

Last week I opened one broken wing butterfly (BWB) on the SPX (May 5 expiration):

(click to enlarge)

I currently have 10 open trades, with expirations in March (3), April (5), and May (2):

(click to enlarge)

Total defined risk for these trades is currently at 64.0% of the account net liquidation value. This risk is broken down into the following groups:
  • 15.8% of net liq - DOTM BWB
  • 48.2% of net liq - core BWB at 75% of target size

Nine trades have been closed this year...eight wins and one loss. Return on the account for the year is at 2.8%.  I will likely open a trade on the May 12 expiration next week, and will evaluate possible trades on futures as well.


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Sunday, February 19, 2017

Weekly Trade Summary: Feb 12-Feb 18

Last week I opened one broken wing butterfly (BWB) on the SPX (April 28 expiration) and adjusted six of my existing put butterflies:

(click to enlarge)
Due to meetings at work I was late in making two of my six adjustments. These late adjustments were made on Feb 17.  The corresponding entries and adjustment descriptions are listed below in the order the adjustments were made.

Trade Entry: Jan 3 - deep out of the money (DOTM) BWB on the Apr 21 exp (see image or post)
Adjustment: Feb 13 - moved 4 of the 10 2180 puts to the 2170 strike for a $0.80 credit
Note: SPX up 101 points from entry (2249.75); DIT 47
(click to enlarge)
Trade Entry: Jan 6 - DOTM BWB on the Mar 10 expiration (see image or post)
Adjustment: Feb 13 - moved 1 of the 2 2210 puts to the 2200 strike for a $0.30 credit
Note: SPX up 72 points from entry (2279.07); DIT 44
(click to enlarge)
Trade Entry: Feb 2 - BWB on the Apr 7 expiration (see image or post)
Adjustment: Feb 13 - moved all 3 of the 2310 puts to 2300 for a $3.05 credit
Note: SPX up 72 points from entry (2278.99); DIT 17
(click to enlarge)
Trade Entry: Jan 24 - BWB on the Mar 31 expiration (see image or post)
Adjustment: Feb 13 - moved all 3 of the 2300 puts to 2285 for a $3.70 credit
Note: SPX up 77 points from entry (2274.32); DIT 26
(click to enlarge)
Trade Entry: Jan 26 - BWB on the Mar 24 expiration (see image or post)
Adjustment: Feb 17 - moved all 3 of the 2325 puts to 2310 for a $3.80 credit
Note: SPX up 55 points from entry (2296.65); DIT 24
(click to enlarge)
Trade Entry: Feb 9 - BWB on the Apr 13 expiration (see image or post)
Adjustment: Feb 17 - moved all 3 of the 2325 puts to 2315 fro a $2.90 credit
Note: SPX up 48 points from entry (2303.16); DIT 10
(click to enlarge)

Some of these adjusted trades will most likely be losing trades.  With so many winning trades this year, I was starting to get uncomfortable...my core BWB has historically had a 75% win rate and I felt I was long overdue for some losers.

I currently have nine open trades, with expirations in March, April, and May. Total defined risk for these trades has increased with this week's adjustments and is currently at 59.9% of the account net liquidation value. This risk is broken down into the following groups:
  • 15.8% of net liq - DOTM BWB
  • 44.1% of net liq - core BWB at 75% of target size
Nine trades have been closed this year...eight wins and one loss. Return on the account for the year is at 2.8%.  With nearly 60% of my account net liq being used, I will most likely not add any trades next week.


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Friday, February 10, 2017

Weekly Trade Summary: Feb 5-Feb 11

Last week I opened two broken wing put butterflies on the SPX (April 13 and April 21 expirations) and closed my crude oil (CL) futures options put butterfly:

(click to enlarge)

The corresponding entry for the CL trade is shown below:

(click to enlarge)

I currently have eight open trades, with expirations in March, April, and May. Total defined risk for these trades is currently at 45.1% of the account net liquidation value. This risk is broken down into the following groups:
  • 12.6% of net liq - deep out of the money broken wing put butterflies
  • 32.5% of net liq - core broken wing put butterflies at 75% of target size
Nine trades have been closed this year...eight wins and one loss.  Based on the statistics for these trades, I had expected more losing trades by this time. The butterfly that I am trading has historically been in the 75% win rate range.  Return on the account for the year is at 2.8%.

I will likely enter one SPX butterfly next week...a core position in the April 28 expiration.  Also, if the SPX continues it's bullish behavior I will make slight adjustments to a few of my open trades.


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Tuesday, February 7, 2017

52 DTE Iron Condor Results Summary

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

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

Normalized P&L per Day

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

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


Normalized P&L per Trade

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

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


Win Rate

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


Largest Loss

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

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


Profit Factor

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


Average DIT For Winning Trades

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

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


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


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Saturday, February 4, 2017

Weekly Trade Summary: Jan 29-Feb 4

Last week I opened two broken wing put butterflies on the SPX (April 7 expiration and May 19 expiration):

(click to enlarge)

I also had one trade expire for a loss.  The corresponding opening trade is shown below:

(click to enlarge)

The expiring trade lost slightly more than my target amount for this trade. Rather than close or adjust this trade in December, I chose to keep it open as a downside hedge through the US presidential inauguration ... just in case.

I currently have seven trades open, with all expiring in March or later. Total defined risk for my seven open trades is currently 32.6% of the account net liquidation value. This risk is broken down into the following groups:
  • 12.5% of net liq - deep out of the money broken wing put butterflies
  • 19.0% of net liq - core broken wing put butterflies at 75% of target size
  • 1.1% of net liq - /CL broken wing put butterfly test
Nine trades have been closed this year...eight wins and one loss.  Based on the statistics for these trades, I had expected more losing trades by this time. The butterfly that I am trading has historically been in the 75% win rate range.  Return on the account for the year is at 2.6%.

I will likely enter two SPX butterflies next week, one core position in the April 14 expiration and one non-core position in the April 21 expiration.  The April 14 expiration series should become available on Thursday.


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