What kind of month-to-month return can you expect from our options strategies? Below we display our performance since inception.
Condor Options Performance
The chart at left displays the Value Added Monthly Index (VAMI) of the Condor Options newsletter trades over the year prior. For comparison, we also show the performance over the same period of the S&P 500 and the CBOE Volatility Arbitrage Strategy Benchmark. The table below tracks some key performance metrics since inception. We discuss the newsletter performance and update the trade list on a quarterly basis.
To download a detailed list of all newsletter trades, click here.
Prices listed are simply those received and confirmed by the participating autotrading brokers. Trade results account for slippage, but not for any other transaction costs or for interest on idle cash.
Note: trades are posted excluding any market normality filters, allocation models, etc.
How we calculate our returns: return percentages for each trade are calculated as the ratio of real risk to final net credit (debit) received. For example, say we have an iron condor with strikes at 50/52/60/62 and we open the trade for a credit of $0.90. The trade goes well, and a few days before expiration we close it out for a small debit of $0.10. To figure out our ultimate return on the trade, we need to calculate two elements: real risk, and final net credit.
Real risk = distance between the short and long strikes on either side, minus the credit received to open the trade. In our example, the strike distance is $2.00, and the opening credit is $0.90, so our real risk is $1.10. $1.10 is the most that we can lose on the trade, i.e. that’s exactly what we’re risking. Final net credit = opening credit minus any debits incurred in adjusting or closing the trade. In our example, that’s $0.90 – $0.10 = $0.80.
Now we divide our final net credit by our real risk: .80/1.10 = 0.72, or 72% Was that confusing? Look at a simpler example. Say you have $7000 invested in 200 shares of a mutual fund, which you bought at $35. After one month, the share price rises to $37. Now, since you received no credit upon buying those shares, your real risk is easy to calculate: it’s $7000 (sure, the fund probably won’t go bust, but happy probabilities don’t change the truth about real risk). If you were to exit the fund at $37/share, your final net credit from the investment would be $400 (200 shares X $2 price gain). So the final calculation of net credit divided by real risk is $400/$7000 = 0.0571, or 5.71%. And of course, a share price rise from $35 to $37 is a move of 5.71%. In other words, we calculate iron condor returns the same way that every other kind of trade is calculated; it just takes a few more numbers to get there because the trade is more complex.
Calendar Options Performance
Although past performance is no guarantee of future results, the chart below shows how the returns we’re getting from the Calendar Options strategy compare to a simple “buy-and-hold” strategy using the S&P 500 Index as a benchmark, as well as the more comparable CBOE Volatility Arbitrage Strategy Benchmark (VTY).
In order to present a more realistic picture of Calendar Options performance, we calculate returns based on a model portfolio allocation. We start with an account balance of $10,000, in May of 2008 when we published the first Calendar Options “Bonus Trades”. We initially size each hypothetical Calendar Options 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.
The Calendar Options returns shown are calculated using real trade prices filled at multiple brokerages, and thus include slippage—but they do not reflect the cost of commissions, which has a significant impact on actual net returns. Benchmark returns are based on a portfolio that is 100% long the stated index at all times.
For a complete list of all Calendar Options trades since inception (not including open positions), click here.
How we calculate returns on individual trades: Return percentages are calculated as the ratio of final net profit to the total real risk, including any additional cash required for adjustment trades. All prices represent dollars per share normalized to the size of the original opening trade. For example, if we open a single-strike calendar spread with a four-contract base position, and then roll two contracts down to a lower strike, we would divide any debit (credit) required (received) in half before adding it to (subtracting it from) the total real risk. For a detailed explanation of why we do this and exactly how it works, please read our June 28, 2008 post, Calendar Options: How We Calculate Returns.
The bottom line is, our Calendar Options returns are expressed in exactly the same terms as any other kind of trade. It takes a few more steps to get there if we have to make one or more adjustment trades, but the end result is simply the percentage return on the total dollars allocated to the position over its lifetime.
