Iron Condor Management Results from 71,417 Trades [STUDY]

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Selling iron condors is a very common trading strategy among income investors, as the trade has limited loss potential and a high probability of making money.

In this video, we examine 71,417 short iron condor trades in the S&P 500 to determine patterns related to managing the trades for profits or losses.

More specifically, we test 16 different profit/loss iron condor management combinations and see which ones were the most profitable and the least profitable. We also adjust each approach for the estimated commissions to determine which management combinations are viable in the real world.

Lastly, we filter all of the trades by the VIX level at the time of trade entry to determine the impact implied volatility has on the profitability of each iron condor management approach.

[elismith]

It's absolutely insane that you are publishing this for free. Also, interesting to look at some of those charts that aren't adjusted for commissions. Thank you so much!

[jeffcouch]

As some one who is currently working on my own iron condor study this was an absolute insane video to have recommended to me right now. Amazing work thank you for publishing this for everyone to learn from.

[ddtta]

This is gold, I cannot immagine the amount of hours spent for this back-testing. So if I get it right, my takeaways are: 1) when Vix is rich (Ie equal or above 23.5) go for 30d IC, in other cases, when Vix lower than 23.5, then go for 16d IC and manage profit at 50% or higher. Thx man

[pisonchristian]

Fantastic research, you have no idea how much comfort it has given me now when entering Iron Condor trades. Well done! please cover more time period to make this study even better. Cheers~

[NickWindham]

Awesome study. Rare to find unbiased detailed information. Keep up the great work!

[Chop_]

I have been trying to figure out how to optimize my condor and credit spread management and this video is exactly what I needed. Thank you!!!

[Prymarch]

Chris, this content is money!! Pun intended... I know I'm viewing 4+ years after the original publishing, but the principles are still very much applicable. Thank you for sharing your extensive knowledge. ~M.

[charliesclubhouse]

Could you address the cash (margin) requirements for each strategy? I feel like discussing net profit/loss looses context without discussing how much capital is tied up. Is this case, it may be negligent, but would like your input. Thanks again for your insightful videos!

[daveyjoness]

Id love to see this done for each SPY option trading day. Im gonna do it with my little 1.5 account

[braddeicide]

The Vix ones, i think the vix position when selling was the most important thing. The short ones probably sold as it cycled down, and longer ones caught it after a full cycle where the vix was again back up.

[djnaydee]

Awesome stuff, it pretty much solidifies what Tom and Tony (Tastytrade) have been saying for years. 25-50% profit target and deal preferably in high vix environments. Well done buddy

[Mastermindish]

If you take closely, you will find a Bizarre fact, and that is unlike what have been told many times, there is a VIX range that results in poor and weak performance. We were all told that Higher VIX number results in better performance for Iron Condor, while in fact, the range between 17.5 to 23.5 has the worst possible outcome. This range is less than extreme high VIX, where VIX stands above 23.5. So, high VIX ( Vix between 17.5 to 23.5), in contrast with very High IV ( Vix>23..5) is where you should avoid trading. The result is poor and market has whipsawed.

[happylung]

This is gold. I hope there are more studies.

[andytolle]

Very decent research, I do miss a few small points, like:

I do expect to see a significant drop in absolute profit when we compare the 'managing at 25%, 30 delta', to the 'managing at 50-70%, 16 delta'... Because I expect your losses (relative to the profits) for the 16 delta to be lower in this specific underlying... in fact, looking back at the averages, it seems about a 50% drop in profit for the 30 delta's compared to the 16 delta strategy (regardless of the fact that for 30 delta, managing at 25% is 'most profitable').
Assuming then a 50% drop in absolute profit, would make total sense to me.

I guess the point I'm trying to make is: showing some absolute profit numbers would allow to question 'what is the most profitable strategy all together for this underlying/situation'?
Showing what caused the most losses, might explain 'why is something the most profitable strategy all together?', and it may also give more context to why the IV impacts the results as it does.

My best guess would be: in this underlying (and considering the historical period you used), lots of tests (and losses) will occur on the call side:
- with 30 delta's you take most profits when managing early, because you'll limit the calls being tested, but then your commissions start eating into your profits and so your overall/absolute profit takes a dive. High IV allows for further strike prices for the same delta, and so since a 30 delta will manifest more, the IV had a way higher impact (compared to in a 16 delta strategy).
- in the 16 delta, I'd expect you have more room for the stockprice to expand, less tests on the call side, and so taking profits later will always outperform taking profits early, mainly based on commissions. It does taper off in the sense that when kept to expiration, you often start to see really big losses after the 70% of max profit region and so taking profits around 50% to 70% seems to be a good range to consider. Where you want to be in that range, as far as my understanding goes, seems to depend most on commissions:
- 70% being preferable the higher your commissions are (since less trades need to be made and losses are still manageable)
- 50% being the more preferable with lower commissions (since lower commissions allow for more trades to be made for the same money and managing early nearly always prevents bigger losses)

... so basically, as far as my own research goes, it's the trade-off between "managing early, costs money (in the form of commissions) and so it increases losses", but "managing early, prevents bigger losses and so it increases profits", and somewhere in between there is a sweet spot.

Mainly because for a 45 day cycle, 'winning trades' (on rough average for this underlying) will reach about 100% of max profit around 26 to 30 days . And so on rough average, keeping something on for longer than that period, you start to take on unnecessary 'time-risk' if you will, and statiscticly speaking, you're setting the door wide open for big losses of a trade that was most likely already doomed anyway.

So managing early is indeed a given, but knowing why seems even equally important, simply because not all underlying or situations are the same. And so we'll need to make choices about "what's a good strategy for this underlying or situation?" and to make good choices, you'll need to know the reasons why something is good or bad in a given situation... that's the small bits I miss, I would have loved to see if your research confirm/destroy the above assumptions about the losses being mainly on the call side and why IV helps with that.

Either way, it's one of the most decent researches I've seen in YouTube so far.

I'll be sure to check your other videos and thank you for all your hard work!

[ScottAnderman]

Amazing. Evidence based practice. Please do more of these!

[grahamjervis]

Great Study Chris. Similar to the credit spread study, will you update this one to include the 2020 sell off? i am wondering if it will change somewhat.

[TheSolfatare]

And you didn't talk about those drastic changes in rentability depending on the IV. What i gather from it:
If IV low: 16-delta condor, don't take loss, take profit at 50%. Very steady income. 40$P/L
If IV medium: Don't play condor. Rentability sucks.
If IV really high: 30-Delta, take also profit at 50%, don't take loss. 60$P/L


That's what the data say. How could manage your trades to improve it?


Thanks a lot by the way! Great vid :)

[richardgshields]

That was excellent. Well done! I hope this helps people trading Iron Condors.

[psusteelersfan]

So @projectoption, are these conclusions right?

1. It is always better to hold IC (16 delta) until expiration OR x% profit versus managing x% loss when trading 45 days?
2. And if you have no commissions taken for trades, it is simply best to not close options until expiration?
3. High volatility options will always profit more than lower volatility with IC.

[edmandell]

Great Video. Isn't there an some what inverse relationship to VIX . For example: Entering a trade with a high VIX potentially means over 30-45 days you would benefit from a drop in Vix. and vs versa. Shorter strikes with less IV "AFTER" the trade would. benefit you.