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0 DTE Iron Condors (Part 1)

I recently viewed a webinar on 0 DTE credit spreads and iron condors (IC) that I found quite enticing. Today I will present my backtesting approach to studying this strategy.

Why did the presentation pique my interest?

Promises of your run-of-the-mill Holy Grail, pretty much: gently disguised, perhaps.

I conducted the backtest in OptionNet Explorer (ONE) as follows:

I try to follow presented guidelines presented, but some details are left vague. 5-10 delta is vague (the presentation mentioned “under 5 delta” or “under 10 delta”). Defining transaction cost to account for slippage is vague (but present, which I don’t believe was the case in the presentation. See second paragraph here). 0-1 DTE is vague compared to only 0 DTE. If the trade is robust and not just good marketing, then these specifics should not matter over a large sample size of trades.

The biggest deviation from presented guidelines is inclusion of Tu/Th trades. The presentation focused on 0 DTE. 100% decay is only possible for these. The Tu/Th trades decay up to ~50-70% even when DOTM with 1 DTE. I therefore tried to get a bit more premium by opening these trades closer to 10 delta. The risk to selling NTM is a lower winning percentage, but shouldn’t that be offset by the additional DTE to keep shorts farther OTM? All trades lasted exactly one day, which in theory should normalize magnitude of market movement. Whether a better control exists may be an empirical question, but always remember past performance is no guarantee of future results.

I will continue next time.

* — An Expire Options button to do so with two clicks (including confirmation) would be a nice software addition.