This week we take a look at the performance of the Monthly Iron Condors ($3k Portfolio) bot template. You might recall that we previously did a deep dive on this template back on Show 214, walking through the strategy setup, the scanner and monitor automation setups, etc. But now that we’ve had it running for a little over a year, we thought it would be helpful to take a look at how it has weathered this year’s market volatility and explore possible ways to adjust or improve its performance in the future.
Important Notes: This podcast is purely for educational purposes and my exploration of this bot template is not a recommendation or suggestion to use this strategy as your own. Bot performance does not includes in commissions, which might vary from account to account or broker to broker. We encourage you to always do your own due diligence, factor in your own personal situations, and trade strategies you are comfortable with in your account.
So, let's dive in and look at how this strategy has performed in this year's volatility and explore possible adjustments and future improvements. Ultimately, if nothing else, we hope this example helps give you some ideas to help with your own trading.
The bot aims to enter multiple, high-probability iron condors to create a well-rounded options portfolio for starting portfolio of around $3,000.
To review, here is the strategy’s setup:
- Scan a list of 10 uncorrelated ETFs across multiple sectors and industries.
- Sell up to 6 iron condors, at least 40 DTE, using only monthly contracts.
- Place short strikes near the 0.20 delta with exactly $3 wide spreads to control position sizing.
- Take profit at 25% or during the week of expiration. No stop-loss used.
Risk management is critical for small accounts and it's an important part of how the template is setup. We prioritized uncorrelated diversification and conservative capital allocation by only trading six of the ten symbols scanned. The bot only trades ETFs to avoid the risk associated with trading any single stock. Additionally, we also set fixed $3-wide spread widths to control position sizing based on the starting capital.
The bot consistently looks to sells iron condors, regardless of implied volatility, but with a minimum probability of profit threshold and a minimum rate of return threshold to filter out bad pricing and ensure it's only entering trades that pass these requirements.
Once a position is opened, the bot automatically checks for profits of 25% using the monitor automation. We didn't want to hold the position for a large profit because we wanted consistency and a high trade count to maximize the high-probability setup.
Finally, as mentioned above, there is no stop loss used for this strategy. If the profit target is not hit, the bot will let the position go until expiration week. You can then add a decision to automatically close the position inside of expiration week if the position is challenged using a switch. This mitigates the possibility of a position expiring in-the-money and helps manage assignment risk.
The strategy, like most strategies, had its ups and downs in the last year. It started with a 12% drawdown in the first two months. However, a month and a half after that, it was back to even and up almost 14% by August. But from the end of August to late October, the strategy had another large drawdown as the market fell sharply and volatility increased. Since November, the strategy has fought back but still had some volatility up and down daily swings.
There is no perfect way to analyze a bot or a strategy - contrary to what many believe. It is, however, important to look at individual trades and take a look at the collection of the trades from a broader perspective. Simple timing can have a huge impact on a strategy’s performance (good or bad) so don't get wrapped up too much in any one trade you review. For example, had we started the bot one month later and avoided the initial drawdown, results may have been significantly different.
You want to avoid tweaking every aspect of a strategy. It is more productive to try and optimize certain aspects of the bot to see how small changes can impact performance and improve consistency.
For this bot template, there were four main strategy components we examined for possible tweaks or adjustments:
- Implementation of 1-min exit options
- Adjust the profit target higher slightly higher
- Close trades a bit sooner in the week of expiration
- Introduce a very low level of implied volatility filtering
1-minute exit options were added after we shared the bot last year and so it's natural to upgrade it to include these. Additionally, targeting a higher profit could lead to increased bot performance but at the same time any adjustment to exiting positions will definitely change the P/L, and holding positions longer will decrease trade count. Of course, you can always backtest multiple profit taking and stop loss levels to get a baseline of how modifying these variables affect results.
Similarly, exiting positions further from expiration will deliver different results as both winners and losers will likely be larger or smaller. The thought here was that removing positions that just didn't work by expiration week might give the bot a chance to reset a new (better) position over where the underlying is trading at the time.
Finally, easily adding an IV rank filter to filter out incredibly low implied volatility should help (we believe) avoid selling iron condors right before a huge volatility event/spike. This might mean slightly less trades vs the standard of no-filtering we used this last year, but it could help get into better positions with lower drawdown potential overall for the portfolio.
We've added these changes to the newest version of the bot template. Clone the bot here, paper trade the strategy in your account, and feel free to modify any variables to customize the automations.