Condor Options

In the August cycle we again disproved two misconceptions: 1) that a market-neutral approach can’t perform well in a trending market, and 2) that a positive-vega strategy won’t profit in an uptrend.

By combining position-level adjustments with portfolio-level risk-management, we outperformed the market in terms of our average return per trade, and booked a model-portfolio return (which is based on a cash allocation sufficient for three trades, including adjustments) that would earn most fund managers their six-figure bonuses. If we discount the expiration-day breakout—all of which and more has now been reversed—the S&P 500 gained just a fraction of a percent more than our model portfolio, and we handily outperformed the S&P 500 Covered Call Fund, which is a more comparable benchmark on a risk-adjusted basis.

Performance Comparison

• S&P 500: +9.12%
• Dow Jones Industrials: +8.71%
• Russell 2000: +12.00%
• S&P 500 Covered Call Fund: +0.28%
• Calendar Options: +6.78%
• Note: the period measured is from expiration to expiration.

We calculate Calendar Options returns based on a model portfolio allocation. We initially size each hypothetical position at 25% of the total portfolio value at the beginning of the cycle; with a maximum of three trades per month, this leaves at least 25% initially in cash for adjustments, if needed. Note that the model portfolio is not intended as a recommended allocation or as investment advice.

To see how the performance of our model portfolio since inception compares to a portfolio that’s 100% long the S&P 500, take a look at our Performance page. All performance figures include slippage (calculations are based on the actual prices at which the participating autotrading brokers were filled), but exclude any other transaction costs.

August Trades

• SPY August/September 99 Calendar Spread: 27.62% return – Our third trade for August expiration was the charm, exceeding the high end of our target profit range in two and a half weeks.
• SPY August/September 89 Calendar Spread: –1.48% return – Considering what pressure the phenomenal July rally put on this initial August position, we’re quite content with the small loss. We did have to suck up the commissions on four adjustments, but it wasn’t that big a price to pay for keeping a tight leash on our risk.
• SPY August/September 94 Calendar Spread: 1.33% return – With just one adjustment, we managed to stay profitable on a trade that we opened in the midst of what turned out to be a huge rally.

Our September positions are on track for a repeat of last month, with one trade already closed for a 26.5% return in 14 days. We’re looking to open our first October position next week on a dip in implied volatility.