ETF Momentum Signal
for February 2016 (Final)
Second Place ETF
Third Place ETF
|Gross Compound Annual Growth Rates
(Since August 2006)
|Top 1 ETF||Top 2 ETFs|
|Top 3 ETFs||SPY|
A reader suggested Condor Options as a guru for review. To conduct a review, we evaluate the Condor Options Newsletter Performance table of iron condor trades (with a few hedging trades) available via the Condor Options Performance self-assessment. This table includes entry and exit dates, trade duration, specific positions/strike prices, initial value (credit), total amount risked (Real Risk), final value (credit), final value as a percentage of amount risked (% Return), risk-adjusted trade size, return on investment (Trade ROI) and cumulative value of a $1,000 initial investment (VAMI). The initial and final trade values account for bid-ask spread by sampling actual fill quotes, but they do not account for broker trading commissions. This evaluation accepts the basic premises of performance assessment as presented in the table. Using the Condor Options Newsletter Performance table as of the end of June 2011, covering closed trades from initial position entry on 5/11/07 through 6/10/11 (162 trades), we find that:
Key points regarding table construction are:
The following chart summarizes the number of Condor Options Newsletter Performance table open trades, excluding 18 delta hedges used to hedge specific iron condor positions over the sample period. The number of open positions ranges from zero to five, with average 2.45. In other words, a trader setting each position at one eighth of available capital would on average be in trades (cash) about 31% (69%) of the time. A more aggressive trader setting each position at one quarter of available capital would on average be in trades (cash) about 61% (39%) of the time.
Note that there are likely open trades at the very end of the sample period which would slightly increase the average number of open positions. Including the 18 delta hedges as separate trades would also increase the average.
Is there any trend in investment return?
The next chart shows the ROI by trade for all 162 closed trades in the sample based on allocating approximately one-eighth of available capital to each trade and no broker trading commissions (as presented by Condor Options), with a best-fit linear trend line.
Trade-by-trade return trends down over the sample period, perhaps because market conditions early in the sample are more favorable to iron condor profitability than conditions later in the sample. Another possible explanations is that the sample has a purely lucky start or an unlucky end. A third possibility is that the market adapts to an iron condor strategy over the sample period.
Is there any trend in ROI volatility?
The next chart tracks the standard deviation of ROI for the 30 most recently closed trades over the available sample based on allocating approximately one-eighth of capital to each trade and no broker trading commissions (as presented by Condor Options), with a best-fit linear trend line. The trend line slopes upward. There is no decrease in ROI volatility that would tend to compensate for the above trend downward in ROI per trade.
What happens to performance when we vary the allocation of capital per trade and include broker trading commissions?
The final chart summarizes the sensitivity of Condor Options Newsletter cumulative performance (scaled to an initial account value of $1,000 per the Condor Options Newsletter Performance table) to:
Results show that taking more risk with larger positions increases performance with no broker commissions, but increases sensitivity of performance to the level of broker commissions. The baseline allocation of one eighth of capital to each trade has a breakeven broker commission of about 3.5%. Breakeven occurs at higher (lower) commission levels for a less (more) aggressive capital allocation.
In summary, evidence suggests that investor who can trade options with low broker fees may be able to apply the Condor Options Newsletter trade recommendations profitably, but the profitability of these recommendations may be declining over time.
Cautions regarding findings include:
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