Q2 Performance Review

The iron condor newsletter returned 6.44% in the second quarter this year, easily beating both the Volatility Arbitrage benchmark (-3.97%) and the S&P 500 (-3.65%), with a lower maximum draw-down for the year and superior 1-year rolling returns. The newsletter portfolio value made a new all-time high.

Although our strategy is almost entirely rule-based, every strategy ultimately requires human input, even if it is at a high level of decision-making. In the case of mechanical or rule-based strategies, perhaps the most important kind of human input is the decision not to alter or halt a strategy after a draw-down. Such “negative” interventions – i.e., refusals to intervene – never appear on any trade confirmation ticket or account statement, but they are easily among the  most difficult actions to take. As I have written before, one feature that dooms most investors to constant under-performance is the tendency to buy high and sell low – not just in the case of individual assets, but also when dealing with individual strategies.

Even though the loss in the May cycle was smaller than those recorded by the VTY benchmark and the S&P 500, a trader exhibiting this tendency might have regarded that loss as a reason to halt the strategy. Such a trader obviously would have missed out on the recovery – and then some – that immediately followed. Fortunately for them, most of our members tend to skew idiosyncratic, in that they don’t make these sorts of mistakes. It helps, I think, that a trader who commits to a strategy that is persistently short gamma / long theta knows in advance that periods of easy, consistent profitability will be punctuated by occasional noticeable losses. What makes our strategy distinctive, in my view, is that we’re able to recoup losses quickly by keeping them close in size to monthly gains – a feature which the standard far-out-of-the-money approaches obviously lack.

Performance Data

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.