ROI Note Iron Condor Feb 2017

Since mid-December, 2016, the Iron Condor strategy has been been in adjustment mode. That is, ever since the Trump win in November stocks have been trending higher and repricing to take into account a reduction in regulation, faster GDP growth, and an incremental $8 of S&P500 earnings that would be generated by a corporate tax cut. When the market trends strongly, either UP or DOWN, this is not optimum for credit spreads and we switch gears into adjustment mode with the primary objective of moving our trades in the direction of the trend and holding the cash balance in the accounts as flat as possible. In this case since the Trump win, we’ve been sliding our spreads upward, moving them quickly, and we’ve done a good job of keeping the monthly realized losses near 1% to 2%, thus holding the cash levels in the accounts relatively flat. Once we get through this adjustment period, we’ll get back to work in making positive monthly returns.

The IC1 strategy, historically, since in was retooled in 2016, makes a positive return of 7% to 10% per month for 7 to 8 months out of the year as the market trades range-bound. For 4 to 5 months out of the year the market will historically trend upward or downward and we’ll move into adjustment mode realizing 2% to 5% losses per month, allowing us to hold the cash balance in the accounts relatively flat. When you add up 12 months for the year, we historically can make some handsome returns. Thus, going through adjustments 4 to 5 months out of the year is just part of the business of being a credit spread writer.

In general, getting through an adjustment period and successfully holding the cash balance in the accounts relatively flat is not easy to do and takes a lot of experience. We believe the Upside Options team is the best in the business in navigating through strongly trending markets.