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SPX 0 DTE Iron Condor Backtest Results

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by Gavin in Blog
November 8, 2022 33 comments

Volatility has started dropping but is still elevated compared to a “normal” market. In high volatility environments, option premiums increase.

Higher volatility means a 15 delta put is now further away from the stock price than it was last week.

Selling options further away from the stock price gives us a greater margin for error when trading option strategies such as an iron condor.

Today, we are using Option Omega to look at a backtest on SPX iron condors.

An iron condor aims to profit from a drop in implied volatility, with the stock staying within an expected range.

When implied volatility is high, the wider the expected range becomes.

The maximum profit for an iron condor is limited to the premium received, while the maximum potential loss is also capped.

To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.

Traders should have a neutral outlook on the stock and ideally look to enter when the stock has a high implied volatility percentile.

Let’s work through the backtest parameters.

SPX IRON CONDOR BACKTEST 2018 – 2022

The first step is to pick our start dates.

For this backtest, we will use January 1st, 2022, to August 28th, 2022.

Then we select our ticker (SPX) and strategy (Iron Condor):

option omega

Step 2 is to select our delta.

For this test, we will sell the 14 delta put and call and place the long leg 35 points away.

We’re also going to be looking at a 0 DTE Condor, which has exploded in popularity in recent years.

option omega

We will start with a low balance of $5,000 but allow 100% allocation to any trade.

It’s not typically a good idea to allocate all of your capital to one trade, but it’s fine for this backtest.

option omega

For this backtest, we open the trade at 9:35am, have a 30% profit target, and a timed exit of 10:59am.

* Advertising disclosure: All opinions expressed are our own. We may receive compensation from some of our partner brands in this article. However, we only promote brands we trust and have personally used.

option omega

An important aspect of any backtest is making it as realistic as possible, so using the software, we can add in commissions and slippage.

We estimate $1.70 per contract for trade opening and $0.70 for closing.

Most trades will not get filled at the exact mid-point of a spread, so we will assume a $0.05 slippage on entry and exit.

option omega

Now that we have all our parameters in place let’s evaluate the results.

The test took around 15 seconds to run and showed overall positive results.

option omega

Out of 133 trades, there were 100 winners for a win rate of 82.7%.

Pretty impressive so far!

The average winning trade was $1,052, and the average losing trade was -$2,181, with a max drawdown of -27.8%.

The overall CAGR is an impressive 5496.9%, so this trade seems to work very well.

This is also during a period that regularly saw VIX spikes up to the 32-28 range.

With this strategy, profits are re-invested, resulting in a larger trade size towards the end of the test period.

This can be both a good and a bad thing.

The overall equity curve is fantastic, but the losses in dollar terms become much larger as the trade progresses, with the biggest losing trade being -$11,128.

That loss came at the start of August.

That being said, the gains get bigger as well, with the biggest winning trade being the very last trade on August 26th.

option omega

Perhaps when trading this type of strategy, it might be worth taking some profit out of the account and putting it into dividend stocks, paying down the mortgage, or even taking a nice holiday!

The full trade log can be viewed within the platform and can even be exported to Excel if you want to drill into the data in more detail.

Here is a copy of the Excel trade log for ease of use.

Backtest Update for Aug – Oct 2022

Here are the updated details on the backtest including the August to October period.

The strategy did not perform as well during this period. Max drawdown is larger, but the strategy has recovered to around its high water mark by the end of October.

SPX 0 DTE backtest

SPX 0 DTE back test

Mitigating Risk

With any option trade, it’s important to have a plan in place on how you will manage the trade if it moves against you.

This trading strategy would require a lot of active management, with trades being opened and closed almost every day.

If you have questions about this strategy, please let us know.

Trade safe!

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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* Advertising disclosure: All opinions expressed are our own. We may receive compensation from some of our partner brands in this article. However, we only promote brands we trust and have personally used.

33 Comments
  1. Geo says:

    That looks interesting but i wonder why you decided to backtest up to August only as the article seems to just have been posted and we are already November.

    1. Gavin says:

      That’s when I wrote the article. Only getting around to posting it now. 🙂

      I just updated the results to the end of October.

  2. Vladimir Montero says:

    Good Morning. I can’t see the Excel trade log . The link appears empty.

  3. Jeff says:

    How are you making money on this when your average losing trades are twice as much as your winners?
    “The average winning trade was $1,052, and the average losing trade was -$2,181, with a max drawdown of -27.8%.”

    1. John says:

      Because the “win” rate was 82.7% (read above).

    2. anon. says:

      They don’t lose as much as they win. With an 80%+win rate a couple of higher ticket losses are manageable.

    3. Bruce says:

      More winning trades than losing trades, a lot more …

    4. Marin says:

      Jeff, if you read “Out of 133 trades, there were 100 winners for a win rate of 82.7%” , that might help understanding. Regards.

    5. wst says:

      win rate of 82.7%; 100 winners at $1,052 and 33 losers at $2,181. thats a pretty large drawdown though. id like to see a longer backtest.

    6. Mike says:

      I believe the answer is in the 82% win rate.

      1. Gavin says:

        Yes that’s right.

  4. Bruce says:

    Gavin, I don’t think the link is active i.e. “Here is a copy of the Excel trade log for ease of use.”

    I like this strategy as it minimises overnight exposure but I would prefer to leg into the Condor i.e. as 2 vertical credit spreads and only put them on when the 5 min or 15 min is oversold RSI(2) 95-90 for bear call, then enter on the first reversal bar usually when price moves above/below the previous close for put/call

    I hope that makes sense?

    1. Gavin says:

      Hi Bruce, the link is active now. Legging in is good if you have the time to sit and watch all the ticks.

      1. Bruce Williamson says:

        Thanks Gavin!

  5. wst says:

    how were the entry and exit times selected? Were these the optimal times from testing results or were these arbitrarily selected?

    1. Gavin says:

      Tried a few different times to see what worked well.

  6. Mike says:

    No stop loss on these trades? Won’t that leave you a very large exposure if your short leg goes in the money very quickly?

    1. Gavin says:

      No, there is a timed exit which is generally going to get you out before any big losses, but obviously there’s no guarantee.

  7. Toby Popenfoose says:

    I am having trouble downloading the copy of the excel trade log. Can you point me the the file?

    1. Gavin says:

      Send an email to [email protected] and I will send you a copy.

  8. John H says:

    Would you mind doing a backtest using 1 DTE and a delta if 7?

    1. Gavin says:

      Results are not good. -$2,684 P&L CAG -60.30%. Would need some tweaking to find something that works.

  9. KC says:

    PDT issues with only $5k account trading every day?

  10. Roman says:

    Hi Gav,
    Thanks for the interesting information.
    I wanted to clarify the following questions.
    Why was such a short period of trading time from 9.35 to 10.59 during testing?
    I would like to see the full test report, but unfortunately the link to the Excel file does not work.
    I think that with a significant drawdown could help capital management, reducing the volume of traded contracts when entering an unfavorable series of trades.
    It would also be interesting to compare the test results with for example symmetric butterfly or other gamma negative strategy.
    Did I understand correctly that during testing the capital was not reinvested in subsequent trades, and the same number of contracts was traded each time?

    Translated with http://www.DeepL.com/Translator (free version)

    1. Gavin says:

      Capital was re-invested. If you send me an email I will get you a copy of the excel file. That time frame seemed to be optimal. If held any longer, the losing trades started to get bigger. So a times exit was crucial.

      1. Roman says:

        I am sending the email address, as it was not possible to download the file from the site [email protected]

  11. Roland says:

    Hi Gavin,
    Thanks for sharing. A few additional statistics for the period until August without(!) reinvesting, based on my analysis of your Excel file.
    1) Max. consec winners: 18, 2nd largest strike 15.
    2) Largest consec loosers: 2
    3) Max days to recover: 9, 2nd largest draw down period 7 days (2x).
    I’d love to know how sensitive the backtest results are, if you shift start and end time, each +/- 5 mins.

  12. Revesz Zoltan says:

    Hello Gavin!

    Could you also share the excel sheet for the period August – October?

    I have a statistical method that I’m testing and trying to parallel yours.

    My strategy:
    – SPX open (GAP) less than +-0.8% , then I open an Iron Condor with +-2% legs.
    – If opening VIX is less than +-8%, I open an Iron Condor with +-2% legs.
    – If SPX opening is greater than +-0.8%, I open only one leg of the IC.
    – If VIX open is greater than +-8%, I open only one leg of the IC.

    Stoploss 400 bucks, no take profit because I let it close.

    I’ve looked at 855 days and less than 30 days with losses. Those days can be avoided with a good chance if you pay attention to the economic calendar.

    Could you also share the excel spreadsheet for the period August – October?

    Thank you! RZ.

    1. Gavin says:

      The August to October results have been added above. I will email you the spreadsheet.

  13. Wlliam Klein says:

    I’ve been trading this since your post 2 years ago. In that time I’ve been doing well. I trade vertical56 spreads/ entered after the first 15 min of opening/ taken at 75% profit/ stop loss at 200%.

    1. Gavin says:

      Nice. Well done William.

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Options Trading 101 - The Ultimate Beginners Guide To Options

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