Iron Condor Backtest: 60 Cycles, Five Years, One Strategy

The Test Setup

Win Rate by Short-Strike Delta

The defining choice. Lower delta = wider safety margin = lower premium. Higher delta = more credit = more frequent touches. The illustrative roll suggests 16-delta sits at the risk-adjusted sweet spot:

Every row ties out: each average winner is half the credit (the 50% profit target), and expectancy is win rate × average winner − loss rate × average loser. For the starred row: 0.70 × $575 − 0.30 × $1,200 = +$42.50, shown rounded.

The 10-delta condor's high win rate is misleading — the rare loser is so much larger than the average winner that the strategy bleeds slowly. The 30-delta condor flips the problem: credit looks attractive but the win rate isn't high enough to compensate. 16-delta is where the geometry of probability and payoff align.

Performance by VIX Regime

The same 16-delta setup, segmented by VIX level at entry. Pattern: iron condors love the middle.

The buckets reconcile with the headline run: 11 + 21 + 7 + 3 = 42 wins of 60 (the 70% win rate), and the bucket totals (+$250, +$4,880, +$300, -$2,910) sum to the +$2,520 net. Note the over-30 bucket wins half its cycles and still loses $485 a cycle — when it misses at that VIX level, the loser is enormous.

The intuitive but wrong move is to chase VIX-30 premiums. The data says the opposite: highest-VIX cycles are the worst for new entries because the realised move frequency overwhelms the credit. Wait for VIX to cool into the 15-22 range and the strategy pays consistently.

The Exit Rule That Quadrupled Net P&L

Three exit policies, same entries:

The 50%-of-max-profit close roughly quadruples the net result of the hold-to-expiration approach. Adding a 200% stop-loss on top trims drawdown by another third without sacrificing much P&L. The "boring" rules — exit early, exit when wrong — are doing all the work. Letting trades expire is where most of the variance lives.

A 50% profit close in week 2 routinely captures 70-80% of the available premium with only 30% of the gamma risk. It's the single highest-leverage decision in the strategy.

Anatomy of the Worst Cycle (March 2022)

Entered SPX 4550/4500P, 4750/4800C iron condor for $14.20 credit. Two days later Russia invaded Ukraine. SPX dropped 7% in 6 sessions. VIX spiked from 24 to 34. Credit ballooned from $14.20 to $42.50 by week 2.

Without a stop-loss the trade was held — it eventually finished as a max loss of $35.80 on a $50-wide wing, costing $3,580 per contract. The 200% stop-loss would have closed the trade at $42.60 — costing $2,840 per contract. The difference is $740 per contract, and it shows up in the max-drawdown row of the exit-rule table.

The lesson isn't that iron condors are dangerous in vol expansions — it's that defined-risk strategies still need defined exits. The wing width caps the worst case, but holding to that worst case has no upside.

The Equity Curve in Words

2020: 12 cycles, +$420. COVID March was a -$3,200 single-cycle loss; nine winners after that grinding the equity back above the high water mark by November.

2021: 12 cycles, +$890. Best year of the run. Low realised vol, comfortable VIX-18 range, theta accrual smooth.

2022: 12 cycles, -$640. The drawdown year. The March cycle below ran to a near-max -$3,580, two more losers were ordinary (-$1,100 area), and nine winners at $575 apiece clawed most of it back. The 200% stop variant contained the March loss at -$2,840, which is where its -12% drawdown (vs -18%) comes from.

2023: 12 cycles, +$960. The bull market resumed. Premium narrow but realised moves contained — exactly the iron condor's preferred regime.

2024: 12 cycles, +$890. Steady year, no major dislocations. The five years sum to the headline: +$2,520 per contract on the 50%-close rule (+$2,880 with the stop added) — a 12.6% simple return on the $20,000 capital base, one contract throughout, no compounding.

Five Takeaways

1. Default to 16-delta short strikes. The 10-delta version is too thin; 30-delta is too rich. Sweet spot for risk-adjusted return.
2. Enter when VIX is 15-22. Both extremes degrade the expectancy. The middle is unglamorous and profitable.
3. Close at 50% of max profit, every time. Quadruples net result vs holding to expiration. The single highest-impact rule.
4. Add a 200% stop-loss. Doesn't dent average P&L but cuts max drawdown by a third. Especially important in VIX-spike regimes.
5. Skip the high-VIX cycles. Premium looks irresistible but realised-vs-implied flips against you. The data is unambiguous: VIX-30 entries are the worst expectancy bucket.

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