About this template
This simple but exciting bot provides results every single day - mostly positive! The bot sells wide Iron Condors of 2 Market Days to Expiration (MDTE). High probability of success & Return % is achieved through Exit Options & a Monitor. Applicable for SPY & QQQ mainly; works for other tickers with variations!
Summary:
The bot opens two positions per day (at market open & at 10am EST) of 2MDTE ICs with an expectation of worthless expiry to keep the premiums. IC width is figured out based upon the amount of minimum premium expected. Indirectly, this is taking into account the VIX situation to ensure high probability of success. Running this bot for SPY or QQQ ensures we have action every single market day.
What is 2MDTE?
MDTE = Market Days to Expiration.
The bot focusses on options expiring after 2 market days.
That means - On Monday, Tuesday & Wednesday, it opens ICs of 2 DTEs &
On Thursday & Friday, it opens ICs of 4 DTEs.
The diagram below explains it all.
Key Features of the Bot:
- Every market day, only two events are run – first: at the market open (9:40 am EST) and another one: at 10 am EST.
- The bot opens one position each of 2MDTE IC at the above-mentioned times.
- The amount of premium expected is set between min-max range and accordingly IC width is figured out. This is to take into account the volatility of the market providing indirect consideration to the VIX levels.
- Even with the above feature, the bot has ability to set min max VIX levels for opening an IC.
- Distance between short and long leg is set at $2 (this is bot-level parameterised though as a flexibility to experiment).
- Exit options are used to stop loss at a % level of credit received (parameterised at bot level)
- There is no profit target set (or rather it is at 100%) as we are expecting worthless expiry of iron condors so that we keep the full premium received.
- At any given time, the bot may have ICs expiring today, tomorrow and the day after (in market days terms). Hence opening 2 positions per day will lead to up to 6 open positions at any given time.
- A monitor is used to check whether an IC leg is breached i.e., the underlying price crossing any short leg level. In this case, position is closed based upon min return % or max loss %.
- A switch is supplied as “Open New Positions Switch” which could be turned off prior to market open (prior to 9:40 am EST) if you think market conditions are risky for opening 2MDTE ICs.
Why 2 positions per day?
Since there is huge movement in market pricing during an opening hour, I have considered two points-in-time of a day to open two positions so that some price bias is neutralised. This is to enhance the win %.
What is layered here?
After having a look at the diagram above, you may see that the bot is creating IC layers every day. At any given time, the bot may have ICs expiring today, tomorrow and the day after (in market days terms). With similar expectation of profit levels, one can imagine layered ICs with legs at different price levels.
What about the PDT rules?
There is a lesser probability of closure of a 2MDTE IC on the day of opening, thus avoiding the Pattern Day Trading rules violations. If it happens then number of such trades could be within limits allowed. However, please refer to the finra day trading rules and please talk to your broker prior to using this bot in a live trading account.
What about 3MDTE, 4MDTE, 5MDTE or nMDTE bots?
I do have running versions of 3 & 4 MDTE bots in my paper trading. However, I am more convinced over 2MDTE version at the moment. My live account shall have this bot running for SPY starting the week of 9th Jan 2023.
Why do I like this bot over 0DTE Bots?
0DTE IB bots demand more margin / capital at risk. For achieving a little profit of low probability, there is always a chance of quick stop losses. With 10% profit targets and 20% stop loss of credit received, 0DTE ATM IBs are still profitable but I am not getting attracted by the return on the capital deployed. I am not a fan of 0DTE ICs, so can’t comment much on that.
The 2MDTE ICs, however, are providing me more return on capital deployed. The win rate is higher as well. There is some action every day which is exciting as if I am a day trader. I also do avoid PDT violations which is not possible for 0DTE bots.
Margin Requirements in Live Trading accounts:
The calculations below are based upon the options margin requirements of TradeStation.
Hence, an allocation of $2500 should suffice for this bot.
Probable Profitability:
Based upon the experience so far from the paper trading, I expect the following results –
Fingers crossed though ... shall keep you posted! Bigger gap opens, sudden volatility changes could affect the results.
Acknowledgement:
Firstly, I would like to thank Matt Grosse whose Dynamic Iron Condor bot of Sept 2021 motivated me to try my own versions. I have used his logic of creating wider ICs for a range-bound fixed premium. Although I have added the VIX criteria as well to protect the capital.
Secondly, heartily thanks to the OA Team for creating excellent features which are making life easier day by day to create automations based upon our real-life trading experiences as well as rationale logic in the game of probabilities.
Last but not the least, I am grateful to each and everyone from the OA community for your active participation, contribution and supporting each other. It’s an awesome experience!! My sincere gratitude to you all.
Many thanks and warm regards!
