Q2 2011 Condor Options Performance Review

The Condor Options newsletter portfolio returned nearly 16% in the second quarter of this year, compared with -0.60% for the S&P 500. The newsletter is also more than six percentage points ahead of the index year to date. Finally, the newsletter portfolio reached a new all-time high in June, something that few indexes or assets can claim.

I noted in my last quarterly update that I expected more periods of sideways price action in the rest of 2011, and so far that expectation has proven correct. More importantly, we have paid close attention to changes in the volatility skew and to the relationship between short-term implied and historical volatility, allowing us to find better entry conditions for the core iron condor positions. The risk management regime using stock and synthetic stock positions to delta hedge the portfolio has kept us from taking on excessive price risk, and has helped make the strategy a purer play on implied and realized volatility – rather than just a daredevil’s bet on short gamma.

Performance data for the Condor Options newsletter is below, followed by monthly returns and a VAMI (value-added monthly index) comparison. Our benchmark, the CBOE Volatility Arbitrage Index (VTY), tracks the performance of a hypothetical volatility arbitrage trading strategy designed to capitalize on the difference between S&P 500 Index (SPX) option implied volatility and the historical volatility of the S&P 500 Index. All monthly returns measure expiration cycles rather than calendar months.

Our average hold time for each iron condor has been about 21 days, and our delta hedging trades are updated weekly when needed – so this isn’t a strategy that requires constant attention or active management. You should probably sign up!

Trend-Following Vertical Spread (TFVS) Strategy

I introduced the TFVS strategy last quarter as a free supplement for subscribers. The strategy is straightforward: we conduct a daily scan of about 20 ETFs with active and liquid options for candidates with new price-based trend signals. When those buy or sell signals are issued, we sell out-of-the-money vertical spreads consistent with the trend. We hold the trades to expiration, or exit if the underlying touches the short strike of the spread. Performance since inception has been fantastic, with another 6% gain for the second quarter on the portfolio level. If the strategy keeps doing so well, we will need to break it out as a separate service soon rather than later.

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Jared Woodard specializes in trading volatility as an asset class. With over a decade of experience trading options and other volatility products ... Read More

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