Does The Iron Condor Options Strategy Really Work?

This was my question before I started posting backtest results of the Iron Condor options strategy at the beginning of 2014: "does the iron condor options strategy really work".  At that time, I had been trading a hedged, unbalanced, iron condor variation with specific adjustment rules.  We were not experiencing the results that we expected based on all of our manual and automated backtests.  The quantity and magnitude of our wins was nowhere close to what we had seen in all of our testing...we were under performing!

Since the strategy was not working as expected, I thought I would decompose the strategy and look at each of the individual components.  Continuing with this line of thinking, I decided that it would also be valuable to start with a basic Iron Condor, and see how it performed.  As I continued to think about this, it seemed to me that other people might be interested in these results as well...and the idea of posting backtest results was born.

The backtest results on this blog are organized into the following three sections (so far...there is a lot more to come!):

Standard Iron Condor Results
This section covers standard balanced iron condors on the Russell 2000 Index (RUT), S&P 500 Index (SPX), and Nasdaq 100 Index (NDX) at different days to expiration (DTE) and short strike deltas.  In this section we simply put on the iron condor with the specified DTE and short strikes, and take them off at 8 DTE and look at the results.

So, what did these backtest results show?  Personally, my biggest "take away" from these backtests was that all of the RUT and SPX iron condors at various DTE and delta combinations made money.  Some variations had larger drawdowns than others, but sitting on your hands and not making adjustments is a profitable approach over time.

A few other personal "take aways" from these tests were: 
  • The RUT 66 DTE variations had the highest overall returns. (see here)
  • In general, 2013 was the worst year for iron condors during the test period from 2007 - 2014, with 2008 a close second.
  • When the RUT iron condor had a losing trade for a given expiration, the SPX iron condor typically lost for that expiration as well.
  • Except for the longest and shortest durations, the SPX iron condors had some of the smother equity curves, although with lower returns than the RUT iron condors.
  • The NDX was the worst underlying (of the three) for the "no touch" iron condor, with the biggest equity curve fluctuations.
All 47 of the standard iron condor test results posts are listed here:
No Touch Iron Condor Articles

The introductory article for this section can be found here:
Thoughts on Options Strategy Backtests


Different Starting Structure Results
This section covers different starting structures of iron condors: Standard balanced (STD), Delta Neutral unbalanced (DN), and the standard balanced with an Extra Long Put (EL).  These were tested at different DTE and short strikes.  As with the first section, we enter these iron condors at the specified DTE and short strikes, and take them off at 8 DTE and report the results.  In this section I only tested the different structures on the RUT and SPX.

So, what did the backtest results show? Again, my biggest "take away" was that regardless of starting structure, all of the RUT and SPX "no touch" iron condors made money.  A "no touch" approach with any of these starting structures was profitable over time...no adjustments required!

Some of my other personal "take aways" from this section's tests were:
  • The RUT 66 DTE variations had the highest overall returns again. 
  • The RUT 8 delta variations nearly always had the lowest return, but typically had the smoothest equity curves.
  • In general, the higher the RUT short strike delta, the higher the overall return, but the more jagged the associated equity curve.
  • The RUT delta neutral structure at 66 DTE appeared to have the smoothest equity curves of all the RUT variations. (see here)
  • The RUT variations handled the 2008 crisis better than the SPX variations, but after that period, the SPX equity curves looked better than the RUT equity curves.
  • The SPX 8 and 12 delta short strikes performed significantly better than the 16 and 20 short strikes.
All 29 of the different starting structure test results posts are listed here:
Starting Structure Iron Condor Articles

The introductory articles for this section can be found here:
Delta Neutral Iron Condor
Iron Condor Structure Alternatives


Different Exit Strategy Results
This section covers different types of exits on the three different starting structures: Standard (STD), Delta Neutral (DN), and Extra Long Put (EL).  As with the first section, we enter the iron condors at the specified DTE and short strikes, and take them off at 8 DTE if a dynamic exit was not triggered.  The different types of exits tested included: 1) loss exits based on a percentage of margin, 2) loss exits based on the underlying moving below the short put, 3) profit or loss exits based on a percentage of the credit received.  I only tested the exits on the RUT this time due to the number of backtests required...and this section is still in progress on my blog.

So, what did thesw backtest results show? At this point, I have only presented the results for the 38 and 52 DTE variations, so I'm still processing the results.  At this time, the trend seems to be that the Standard variation with or without dynamic exits appears to have the greatest overall return.  It will be a few weeks before I can confirm this though.  It is also looking like:
  • At 38 DTE, and lower deltas, the margin loss (ML40%) and below short put (BSP) exits improve the performance of the RUT iron condor variations.
  • At 52 DTE, and higher deltas, the credit based profit and loss exits improve the performance of the RUT iron condor variations.
All 20 (at this time) of the dynamic exit test results posts are listed here:
Dynamic Exit Iron Condor Articles

The introductory articles for this section can be found here:
RUT Iron Condor - Dynamic Exit Overview - Part 1
RUT Iron Condor - Dynamic Exit Overview - Part 2


With so many new readers coming to this blog, I thought it might be a good time to step back and provide a bit of context for all of these backtests and the reasoning behind my testing approach.  Hopefully I've accomplished this goal with this post.  In addition, I hope this post is a bit of an aid in navigating all of the articles, data, and tests on this blog.  If you are a new reader, please read the introductory articles listed above for each of the three sections.

This blog has taken on more structure and become more extensive than I had originally envisioned.  It has become a repository of test results, that hopefully will aid other options traders in deciding which iron condor flavor will work best with their personality.

In the next post I will move on to the results for the 66 DTE, 8 delta short strike Iron Condor options trading strategy, with varying Initial Credit % Profit/Loss Exits.

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