What kind of month-to-month return can you expect from our Iron Condor strategy? Below we list our closed positions since inception.

If you’re wondering about those two losing trades in January 2008, check out our monthly review.

Calendar Options Performance

Note: in June 2007, we switched from the traditional underlying indexes - SPX, OEX, RUT, etc. - to exchange traded funds like SPY, DIA, IWM, QQQQ, etc. This switch allows us to get tighter spreads and faster fills, use less leverage per individual spread, and have more flexibility with risk allocation. You can read more about this move in our faq.

How we calculate our returns: return percentages 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.