I have experimented with many options trading strategies. But here is the one strategy that has outperformed all others so far – and that also fits very well with my risk profile and trading style.
Options trading has been a hobby of mine for the last couple of years. For nine months I have traded the 0DTE Breakeven Iron Condor strategy. So far it has proven to be consistently profitable.
These are my key statistics:
- 588 trades from April to December 2021
- Using an average buying power of 12.000 – 15.000 USD, I have made 9000 USD trading this strategy after commissions and fees.
- 41 % of the trades have been winners so far, 59 % have been losers
- All nine months have been profitable
This article is only to describe my own experience with this strategy, and should not be interpreted as financial advice in any way. Remember: Any options strategy carries great risk – and this particular strategy has the potential to blow out your account if you do not use stop losses or manage the risk well.
The 0DTE Breakeven Iron Condor strategy
So what is the 0DTE Breakeven Iron Condor strategy?
- It is a daytrading strategy on SPX – the index option for the S&P 500 index. 0DTE = Zero Days to Experiration.
- It consists of selling Iron Condors on SPX – with expiration the same day – collecting approximately the same premium on both sides
- The trades have a very tight stoploss – set separately for each side equal to the total premium collected for the Iron Condor. This limits the potential loss on each trade.
- Credit: I was first alerted to this day trading approach by Al Dabby in the very useful and friendly Facebook group Tastytrade Options. (I really recommend this Facebook group if you are interested in options selling)
Iron Condor: An options trading strategy where you sell both a call credit spread and a put credit spread at the same time. The trade profits if the underlying stays within a defined range when the options expire.
Characteristics of the 0DTE Breakeven Iron Condor strategy
There are two crucial characteristics of this strategy:
- It is a daytrading strategy – only executed on options that expire the same day. I trade only on days when the weekly options of SPX expire – which is Monday, Wednesday, and Friday.
- The very tight stoploss – hence the name “Breakeven” – means that the potentially loss on each trade in principle is close to zero. In practical terms the average loss should be normal slippage, which would typically be in the 20-50 dollars for one credit spread on SPX.
Many traders focus on their win rate. This is a strategy with more losers (59 %) than winners (41 %). Yet, the overall strategy is profitable. The main reason is that the average profit is much larger than the average loss.
So far the average win for me has been about 2,45 times the average loss. And that gives what is much more important than a high win rate, namely a positive expectancy.
Expectancy: Calculated as the percentage of winners multiplied by the average win size minus the percentage of losers multiplied by the average loss size.
This fits my personal trading style and risk profile. Yes, I will definitely have losing days. But the sizes of the losses are usually limited, and I have only had a few days with what I would call big losses.
There is also another reason this strategy fits my own personal trading style: It is market neutral. Many like to predict where the market will be moving. Personally, I have concluded that there is no chance I will be better than others in predicting this. I have no edge in knowing where SPX will go – at least not yet. Therefore I stick to strategies that are market neutral – and that make money on the passage of time, the so-called theta.
Theta: An option decreases in value as time passes. This is beneficial for the seller of an option (selling high, buying back cheap) – and to the disadvantage to the buyer. The Greek letter Theta is used to tell how much the value of an option decreases with passage of time. The strategy described in this article benefits from theta decay.
My results so far
On most trading days I use up to 12.000 USD of buying power on the 0DTE Breakeven Iron Condor strategy. On some rare occasions, I may risk up to 15.000 USD.
Buying power: The capital in your account the broker blocks for you to do the trades. Often called margin. Usually it is identical to the maximum theoretical loss on your positions.
During these nine months, I made 9052 dollars on this strategy. Compared to an average utilized buying power of 15.000 USD over nine months, that is by any standard a very nice return on capital.
Here is a monthly breakdown. As you will see, all months have been profitable. But November only barely so, while December proved to be the best month. (April was a starting month, with very small positions). November had its fair share of choppy days, which probably explains my relatively poor results that month.
How I execute the 0DTE Breakeven Iron Condor strategy
So let us go more into details about how I execute this strategy.
I am still developing my execution rules. But I think this strategy will always be a mix of mechanics and art, so to speak. And the most important of all is to manage the total risk exposure throughout the day. As of now, there are no 100 % mechanical rules for when I enter and exit.
But here is a summary of how I execute:
Each trade is an Iron Condor with the short legs between 5 and 15 delta – and the long legs 15 to 30 points further out. The standard trade is to collect approximately the same credit on both the call and the put side. I only sell one contract at the time – but may have up to 4 different positions open at any time. Usually, I collect anywhere from 70 to 250 dollars for the Iron Condor, depending on the deltas and the wings.
Delta: Another Greek letter used in options trading. Tells how much the value of the option will change when the value of the underlying, in this case SPX, changes. Delta is also used to measure the probability of the option being profitable at expiration. A delta 10 in this case means that there is a 10 % probability that the trade will lose money at expiration.
I set the stop loss immediately after entering the trade. I do this in two stages – using the OCO (One Cancels the Other) functionality in the Thinkorswim platform:
Stop loss 1: A stop-limit order on each side where the stop is set at 5-10 dollars away from the total credit received, and the limit price 20 dollars further out.
Stop-limit order: A stop-limit order will execute if the trade price reaches a certan level (the stop price), but only be closed at the limit price or better. If the market moves fast against you, both of these levels may be passed without the stop loss executing.
Stop loss 2: A stop market order 15 – 20 dollars further out than the limit price in the stop-limit order.
Stop market order: The trade will be closed when the price reaches the stop price – at whatever price the market is willing to give at that moment. The benefit of a stop market order is that you know you will get out of the trade. – but there is no guarantee of the price.
So to give one example: I sell the Iron Condor 4820/4850/4755/4725 and receive 175 dollars in credit. I will then set the stop limit order with the stop price at 180 and the limit price at 200. The stop market order would be set at 220. Most losses will be within the stop limit order - and in this case that would be between 5 and 25 dollars.
This two-tier stop loss has served me well so far. In at least 90 % of the cases, stop loss 1 will trigger. But in extreme situations, when the market moves very quickly, stop loss 2 serves as an extra line of defense to make sure I get out if the market skips over the levels in stop loss 1.
Here is an example of how I set up a stop loss in the Thinkorswim platform:
Stop losses are an essential part of this strategy – and must be entered immediately. In my experience, the market can sometimes move very quickly against you in day trading. Pre-set stop losses are the only way to ensure you are able to get out quickly when that happens.
I typically open the first trade within 10 – 15 minutes after the market open. This trade will usually have a quite low delta, up to 10. The distance between the wings will usually be 25 – 30. This trade will benefit nicely if the market stays relatively calm for the next 30 – 60 minutes, but is quite vulnerable if there are sudden moves.
Within the first half-hour I usually also enter a new trade with higher delta and higher credit collected. I may choose more narrow wings on this trade to make it less vulnerable to price movements.
Example trade 1: On New Year Eve SPX opened at 4775.21 and quickly rose around 10 points. Ten minutes after the market open I sold the Iron Condor 4820/4850/4740/4710 for 150 USD. But then the market made a quick turn down and the put side was closed on the stop loss for 175 dollars after only 20 minutes. Later in the day I decided to close the short call for 5 dollars to take down the total risk. Total loss on the trade: 30 dollars.
Example trade 2: The next trade on New Year Eve was opened 23 minutes after the market opened. I sold the Iron Condor 4805/4835/4745/4720 for 235 dollars. This trade stayed in positive territory the whole day – and expired worthless at the end of the day with all of the 235 dollars as profit. The SPX closed at 4766.18 this day.
Throughout the day I may open new trades – but trying to follow a set of principles I have defined for myself:
- I will not exceed the 12.000 USD buying power limit I have set for myself – except in cases where I deem that one or more of the positions are very safe. In my case this means I can have up to 4 positions of 1 contract open on each side at any time. Often I will take off a trade with decent profit to enter a new trade with better prospects.
- I don’t have a strict set of exit rules yet. In the beginning I let the trades expire worthless if the stop loss was not hit. Now I am more flexible, depending on the situation and my total risk. I will definitely let trades run if they have very low delta. But I will also often choose to take off a trade when it reaches a decent profit, both to pocket some money, but also sometimes to balance the positions.
- I try to always have a look at the total risk picture of my positions. Example: If I have three positions open, and they are all negative delta, I may open a positive delta Iron Condor next to balance.
- I avoid having multiple cases of the same strike price to avoid messing up the trade management.
- I try to place new trades with some time distance apart – and when the market seems to have stabilized on some level.
- I avoid trading in the last 30 minutes before the market close. The market can sometimes move too fast during this period – and the risk level can explode in a matter of seconds sometimes.
- During the last hour I will change the stoplosses of the remaining positions to be on the shorts only. This makes it easier to get quickly out if the positions move against me and adds better protection against bad fills. Besides, the long positions usuallly are pretty worthless at this time.
Be aware: This can be a time-consuming strategy. I have executed on average 5 trades per day – and I do think that even with stop losses, you will get better results if you are able to monitor your positions continuously. That means this is not a strategy for everyone.
What are the biggest risks with the 0DTE Breakeven Iron Condor strategy?
The strategy has been profitable every month so far. However, any options trading strategy has risks, and I do expect to experience a losing month soon.
I think there are three main risks to be aware of in this strategy:
- Double stop losses
- Bad fills on the stop losses
- Bad management of the total risks of all the active positions
All risk factors will typically occur in the same environment: Big and sudden moves in the market, especially to the downside.
I will elaborate on each of these, but let us first look at the daily profit and loss graph:
A couple of observations:
- There are very few big losses on single days. And that is why I love this strategy!
- Of 112 trading days 64,3 % have been profitable and 35,7 % have been days with losses
- The average winning day made a profit of 191 USD. The average losing day caused a loss of 118 USD.
- The biggest daily win was 735 USD on December 8
- The biggest daily loss was 712 USD on November 26
When I look at the days with the biggest losses, they are all a result of the three risk factors I mentioned.
Double stop losses
Usually, stop losses will hit only on one side of the Iron Condor. That means the loss will be rather small. And that is the main intention of this strategy. But every now and then the market is so choppy that also the stop loss on the other side is hit. If that happens to more than one position, the losses can start to pile up.
Of my 588 trades in 2021, I hit the double stop loss in 18 trades – or 3,1 % of all trades. Most of them (14 of the 18) occurred in the last quarter of the year. Especially November was a choppy month.
Bad stop loss fills
The other risk is bad stop loss fills. This can occur when the market makes a sudden and big move in one direction – and the stop-limit order is skipped. The trade is then defended by the stop market order further out – and in a fast-moving market with high volatility, this can occasionally lead to a very bad fill.
I don’t have statistics for this, but it has occurred a couple of times, causing unnecessary big losses. November 26, when I had my biggest daily loss so far, was such a day.
Bad management of the total risks of all the active positions
My rule is that I can have up to 4 active positions on each side. That means I have a buying power reduction of up to 12.000 USD.
But I also try to look at all positions together – and assess the total risk at any moment. How well am I positioned if we experience a sudden move up or down in the market?
Managing the total risk is crucial for this strategy in my experience.
What is the worst case? I think it is that all four positions hit the stop loss on one side, and then the market turns violently and I hit the stop losses on the opposite side for all positions as well, possibly with a couple of very bad fills.
What will be my focus in 2022 with the 0DTE Breakeven Iron Condor strategy?
I have traded this strategy for nine months – and the results are so far great. But I think I have still much to learn – and I keep thinking about how I can tweak it. And also: When will it fail? In what situation will I start losing money on this strategy? I would love to hear your thoughts on this!
The main goal for me in 2022 is to understand better what are the best times for entry and exit. Can I define some criteria for when to start and close trades? And are there criteria that will tell me which days I should just stay away from it?
I suspect this may be linked to VIX levels – and also staying away on strongly trending days. But I want to analyze this more thoroughly.
The great thing is that the more trades I do, the better analysis I can do, just using my own data. All the data in this article are taken from my detailed trade log in Excel.
Maybe in a year, I will have a more mechanical list for entry and exit. Or maybe I will have concluded that it is not possible to set up 100 % mechanical rules, but that I have to use my experience and the assessment of my total risk to guide me in which trade to make.
It could also happen that the strategy does not work anymore.
In any case: I look forward to keep exploring!
A very intriguing strategy John, well done. A couple of questions. Have you analysis how the strategy has performed on different days of the week (Monday, Wednesday, Friday)? Do you experience more losses when VIX is higher, due to whipsawing (large intraday swings)? If the market gaps up or down are you more likely to get stopped out during that day (Market gaps down 1%, you enter trade at open, than market rallies 1.5%)?
See answer below 🙂
Jätteintressant! Tack för att du delar med dig, och det ska bli att se hur du utvecklar systemet.
Tror du är något på spåret med att undvika alltför volatil Vix, och kanske även nyhetsrika dagar.
Takk, Filip! Ja, neste steg, tror jeg, blir å studere mer i detalj hvordan man bør agere på forskjellige typer markedsdager. Jeg tror en svakhet med egen trading er at jeg har en tendens til å overtrade på volatile dager – i et forsøk på hente inn tap og likevel komme i plus. Det fungerer noen ganger, men andre ganger øker det jo bare tapene.
Well done John. Good outline of your strategy. Have you done some analysis on how the trades performed depending on the day of the week (Monday, Wednesday, Friday)? How it performed in low VIX compared to high VIX environments, where you get larger intrad day moves? and how it performed on days after a gap move up or down (any whipsawing)?
Thanks for your comment, Michael! No, I have not done any analysis of the day of the week, and I don’t quite see how that will affect it either, unless there are some data that shows that one weekday systematically is less volatile than others. However, as I write in the article, I do want to study how VIX is influencing the strategy. I think the first step will be to see if there is any correlation between my profit and losses on single days and the VIX for the same days.
Hi. Thanks for sharing. I don’t understand why isn’t it better for you to change the size of your trade instead of trading four trades simultaneously. Good luck
Tsah: Because trading single contract allow me to spread the trades a bit more. I never put all the four trades on simultaneously. I start with one, then later add another if the market is consolidating on a different level. Maybe I will use the third trad to adjust the total delta. This way I spread out the risk. Remember this is a strategy where most of the trades are losers. By spreading them out I think I am reducing the total risk. If for instance one of the four trades is a winner, that will often pay for the losses of the three others. Doing all in one trade will bring more volatile results – and especially the double stop losses will hurt a lot more when they happen. For me it is all about risk management.
Very interesting and promising.
Thank you for the breakdown.
Do you have or know of a tutorial on trading iron condors? I’ve watched several YouTube videos along with a TD Ameritrade tutorial, however it still confuses me.
Thank you, Katie! I don’t have any particular tutorial to recommend. But I have enjoyed the site optionalpha.com a lot in learning about options. What is it that confuses you?
Thanks for the write-up and live testing! So in your experience, you prefer breakeven IC than 3x stoploss IC?
Thanks, Ted! I am still learning for sure. And I think we all have different trading styles and risk profiles. What suits you, may not suit me – and vice versa. I like the breakeven Iron Condor because of the small losses. Yes, I lose often – and a lot of the losses would have ended up as winners if I did not have such a tight stop loss. But with my experience so far it has a clear positive expectancy – with small draw-downs. That suits me. You may have a completely different style 🙂
How is it that you are collecting the same premium on both the call and put side of your condors?
“The standard trade is to collect approximately the same credit on both the call and the put side.”
From my experience with SPX, there is much more premium on the put side and an even IronCondor would pay much more heavily on the put side. Are you typically in the 5 delta range for the puts and the 15 delta range for the calls?
Or setting a 5 delta put and then seeing where the calls can match the premium of the put side?
Remember there are both a short and a long component on both sides. I try to receive approximately the same premium for each of the spreads. Normally the shorts will be at the same level as well, but I will sometimes have different distances to the longs to adjust the credit. For instance the distance may be 20 points on the call side and 30 on the put side.
I see. So willing to go a bit unbalanced with the longs, but keep the shorts delta about equivalent to stay neutral. Playing with it this morning probably around $80-$120 per side of the condor.
Thank you for answering my questions!
It would be very interesting if something more mechanical can be found. If you have a place you discuss this strategy on an on-going basis I’d love to participate.
I can recommend the Facebook group TastyTrade Options: https://www.facebook.com/groups/1930565613719977 . This strategy has been discussed there a few times – search up the name Al Dabby as well as my name. There are a lot of really good contributors in this group who are very willing to share how they trade.
Tried this out on Wed, lost ~$50! Given the way the market moved though, I don’t think that is too shabby.
But I like the mechanics and am looking forward to exploring this strategy further.
Thanks John for sharing details on your strategy! Here are some follow up questions: 1 do you use your strategy on Russell indexes or others on Friday expiration for additional diversification? 2 I’m no margin expert – if one opens a short 0DTE and closes it on the same day is there a margin requirement? I don’t know if this strategy will impact my existing strategies from a margin perspective. 3 How do you get your delta information on SPX?
Thank you, Jason! To answer your questions:
1: I have only tried it on SPX – as I know the liquidity is very good. It is crucial for this strategy that you get out fast if it goes against you – that is normally no problem with SPX. I am not sure if RUT is as liquid – others will know that better than me. I tried once daytrading on NDX – and told myself never again. It was just impossible to get out of the trade.
2. I am not a margin expert either. But it does lock up buying power. So if I sell an Iron Condor on SPX with 30 points between the shorts it locks up 3000 dollars (30X100) of my account capital for as long as that position is open.
3. I use the Thinkorswim platform – and the delta information is part of the trading window. I just have to set it up as one of the values I want to have displayed.
Hope this answered your questions!
Thanks John for sharing details on your strategy! Here are couple of follow up questions: 1 do you use your strategy on Russell indexes or others on Friday expiration for additional diversification? 2 How do you get your delta information on SPX?
I think I already answered that on your previous comment?
Yes, you absolutely did – thanks. I thought I lost my original reply, so I sent the second one.
Can you clarify what DELTA do you use for the SHORT PUT + SHORT CALL?
Is it 5? or somewhere between 5-15?
Between 5 and 15 – depending on the other positions I have and my total risk. I also look at the credit I will receive – being aware of not risking double stop loss. So I will often go for lower deltas.
John: want to make sure I’m fine tuning your strategy. Today I had SPXW Calls at $4,735 and $4,760 for net premium of $1.50. On the Put side I had $4,665 and $4,640 for net premium of $1.70. I put in a stop loss limit of $3.20 on the Call side and $3.30 on the Put side. The Put side stopped out fairly quickly. However, I did not have a stop loss on the long position and ended up making some profit on the long Put. The Call side expired worthless. The net was a good profit. When you add the Stop Loss is it just on the short position, or is it on both the Short and Long position? Thanks!
Personally I add the stop loss on the whole spread, so both the short and the long position. The executions is during the last hour of the market – then I prefer to have stops on only the shorts. At that stage the longs are usually not worth that much in any case. However, this is how I do it. I think you should experiment with what works for you. And, as you point out, with stop loss on the shorts only, you may sometimes be lucky and get a nice profit on the long position 🙂 It goes without saying that you may lose the remaining value of the long as fast if the market turns back right as your stop loss hits – and which day trader has not experienced that? 🙂
Good luck in fine tuning the strategy!
How do you survive TD Ameritrade fees? I have been playing around with this in paper money for a couple of weeks, doing 2-3 ICs on Mon, Wed, Fri and would have already gotten almost $400 in fees.
Tyler: You are right – the fees add up. All numbers in this article are net, though, after fees have been paid. The gross profit in 2021 was 12.603 dollars, while the net profit was 9052, as written in the article. The fees thus constituted 28,2 % of the gross profits.
As in every gold rush, those making money are those selling tools and tents!
Both TDA and CBOE have made a killing on fees. I managed to get TDA to drop fees by 20%, but I don’t know of anyone that lowered their CBOE fees.
Looking forward for WeBull to get into SPX, as to generate competition (and lower fees)
Awesome post, John! Can’t wait to try it out. I’m wondering if you can share trade logs in a google sheet? It would be interesting and helpful to see examples and see how the p/l goes up! Thanks.
Thank you, Mimi! Not sure I can promise to do that, though. My log is in Excel, and mixed with several other strategies. So I think it would take a bit too much work for me to extract only these and transfer to Google Sheet. Sorry about that!
Hi John, how did you do yesterday (1/12)? Did you get double stopped?
Gigi: No, actually January 12 turned out to be a very good day – with 500 dollars in profit. But I was quite active with 10 trades in total. 5 were profitable, and 5 were losses. No double stop losses on this day. Several of the winning trades I took off early to pocket money. I let only one expire, in fact. This being said, earlier in January has not been as good for my strategy. I am still in minus for the month, with two double-stop losses that hurt in particular.
Thanks for sharing your strategy, I just have a question. Whats the latest time do you enter your last 4th position? and do you have averages of what times you enter each position? Iam just tryin to see if its still worth entering a postion after 10AM since we know theta slows down around that time. Thanks again
Jp: I don’t have clear times of when I enter the trades. In fact I may enter throughout the day – except the last half hour of trading. But I keep a very close eye on my total risk. Usually I will have only 2-3 trades on at any time, and my maximum is 4. I look at my total exposure on both sides.
Hi John, 28% fee, at that point may be webull platform is the way to go for the 2nd quarter 2022, they have no fee, tastytrade lacks the OCO but they have braket which only works for one leg. Great info from your part, I’ve learned your double stop strategy.
The bulk of the fee(s) on trading SPX is from the exchange itself, not the broker. Webull isn’t going to help with that.
Very thorough write up. I’ve traded similar set ups beginning around the same time as you (Mar 2021). I traded IC with 0.5x stops with success as well. Currently I am trading with 1.5x stops on each wing (as opposed to your 1x). It increase win rate on each wing to about 73%. Losses are still very small when stopped on one side, but it nearly eliminates double stops. Similar to you I enter several times per day
I’m curious if you have calculated your premium capture rate?
Thanks for the write up! Your strategy inspired me and I did some backtesting with multiple parameters and yes, the strategy seems to work.
Regarding the OCO orders: I called TD Ameritrade and asked if it’s guaranteed that only one of the two orders will be executed and they replied that there’s no such guarantee and that double fills DO happen, although not often (and that they are not responsible for any losses caused by that). Have you ever experienced a double fill? On the screenshot you have a $0.20 distance between your stop and limit prices and another $0.20 to the market stop price. Is that your typical set up or are you doing wider price gaps? Thanks!
Hi Evgeny! It would be great if you could share your backtesting results! Thanks!
As for the OCO order: I am aware double fills can happen and have experienced it once or twice, – in a very turbulent market with a sudden move. Yes, $0.2 and $0.2 is my typical distances. Sometimes I will go down to $0.15 to the market stop price.
The double fill is of course not something you want. But often you may not lose money on it. Let’s say the market drops suddenly – and you get a double fill. You would then suddenly be long what you were short and short what you were long. If the market continues dropping, you could actually experience a nice profit. If it turns around, on the other hand, it would add to your losses.
But as I said – after several hundred trades it has only happened to me once or twice.
A much bigger risk, in my experience, is if stop losses hit on both side of the Iron Condor.
Got it! Yep, double fill shouldn’t be as bad as double stop loss. And the absolute nightmare would be double stop-market loss with significant slippage. Speaking of which, what is an average slippage when your stop limit gets skipped and the stop market gets executed?
Regarding the backtesting results: I purchased CBOE quotes and trades data for 2021 and wrote a program to backtest using different parameters: put delta, call delta, entry time, stop loss ratio etc. One of the strategies that I like (with reasonable drawdown and return) is 0.25 delta on puts and 0.3 delta on calls with stop loss ratio between 1 and 1.1. The winners rate is around 30 percent. Annual profit is ~85%. But you know, 2021 was a bull year, results will vary for different markets.
I used the following assumptions: max day loss = 2% of account value and max theoretical risk (spread width * qty) = 50% of account value.
I continue backtesting adding more parameters, connecting it to the VIX levels etc. After that I will also see how 1DTE trades would play.
Outstanding results you have here. Quick question like you mention you open IC trades multiple times at different times a day. So is it advisable to do the same and capture some profit and close and then open another IC and capture it’s profit and so on and so forth i.e. scalping throughout the day. That way there are no losses and the days where markets are calm the scalped profits are huge. Also at various times of the day we position ourselves with market move.
Please do let me know as Iam also interested in 0-dte but want to limit or avoid gamma risk(price movement risk against me).
Thanks in advance
How have you been fairing in 2022? With stop losses of 5-10 cents you should be stopping out most of the time (I’m guessing more than 60%) . I track 3x stops, and it’s common to go 50% into the redat some point during the day.
Thank you for sharing this strategy!
John, Thanks for sharing your hard work. I have been trading 0 DTE off and on for a couple of years, and am working on a 0DTE hedge by buying a put 7 days out if you are interested. I have two questions on your strategy. 1) My assumption would be that the additional condors throughout the day is that they are centered on the current price at that time. 2) If you get stopped out on 1 side of your original condor, do you put an entirely new one on, without closing the entire first one.
Thank you very much for such a detailed write up, very informative. Can u pls explain what’s balancing total delta? What’s positive and negative delta?
Hello. I have enjoyed 0dtes for the last few months as well. I am starting very basic, delta under 5, very passive, but want to continue to expand. Are you on any sort of forum, perhaps Discord? It is a great way for people to share ideas in a very organized way. I would join if you have one. Otherwise I will continue to check your site for updates on your results.
Hello Mr. Sandvand,
Thank you for your sharing. Do you have any update and adjustment of your IC strategy since you posted it here 4 months ago? I would be interested to know it.
Following is a video of backtesting a very similiar strategy with yours on youtube. I think that only major differences are that his strategy uses 1.5x stoploss (1x stoploss in your strategy) and only stops out the short leg (both legs in your strategy). Hope it helps your trading.
Thank you and hope to see update of your strategy.
Hi Erik! Yes, I have continued trading the strategy – and I plan to write an update soon. In short, January was my the first month with loss – not the least due to more double stop losses than usual. I made most of it back in February, and then March turned out to be a very profitable month. April ended with a very small profit. I am ok with that, as April was an exceptionally turbulent month in the markets.
Hi John, Thanks for posting your strategy! I am doing something similar, but with 1DTE, which gives me a little wiggle room for adjustments. I am still at best, an advanced beginner, but am curious if you or others have experimented with 1 day prior to expiration.
I don’t quite see how this strategy will work on 1DTE – at least the way I do it. The reason is that if the stop loss hits on one side, the opposite side will not expire worthless until the next day. And if you keep it overnight, you will add a whole lot of more risk.
Well done John. I like your double stop system. I see room for lots of variation. Have you tried many variations? It seems your first stop is about ~1.1 – 1.3 x credit stop loss. Hence the “tight” aspect, correct? Have you tried using a 2x or 3x stop? Seems 3x is very typical in the TT group. I’ve used it but it can result in heavy losses, the way I trade. I also like to play around with a trailing stop as the 2nd stop. Today I was stopped out using a .60 trailing stop in an SPX IC, resulting in only a $.05 loss. I took this trade at 3:05 pm, when theta is rapidly decaying. Price looked very steady so I tried to sneak in a quick IC. It works great in paper trades! I have to keep working on it in live TOS trades. Thanks for sharing.
I have tried other stop losses – in fact I run a couple of other 0DTE strategies in parallell to this one. What I love with this approach, though, is that I rarely have days with very big losses. The trade-off, of course, is that most trades in fact lose.
Great strategy John. I have used your strategy in the past with good results. However, I’m wondering how you’re doing in this current market and if you’ve made any adjustments to deal with the current volatility. I’ve been experiencing a higher number of double stop outs recently. Thanks again.
I will do a new write-up within the next few days. But to answer shortly: I starten trading this strategy in April 2021, and so far only January 2022 was a losing month. It has been more tricky in the current turbulent market, and I guess my adjustment is that I am even more careful than before about my risk management. For instance I will typically have fewer positions on at the same time than I did before.
Hi, nice strategy and well written explanation of how to do it. Has it continued to do well for you?
Yes, it has, except for January 2022, which was the only month with a loss so far. I will publish a new write-up within a day or two – look out for that one!
Thanks for sharing the strategy and nice writeup for benefit of others. It will be great if you can clarify a few of my doubts.
As you said you will be entering 4 trades in a day, 1 after the other. is there any timing, delta, and the premium you follow?
Usually I enter more than 4 positions, but I usually do not have more than 4 positions open at any time. Sometimes I will close early for profit – or close to reduce total risk. To keep an eye on the total risk is most important here.
As for entry, I think it is described in the articles I have written.
Al Dabby is a rookie trader promoting his version on ODTE. Truth is, he was paper trading last year and by his own admission has traded for just 9 months. He is not an expert and many people he has pitched this to have lost many times or blown out account with ODTE.
To add, he did not originate the concept of ODTE but tries to take credit for ODTE. There is nothing original about ODTE. Be careful if you are starting out with ODTE.
William, I think you are being unfair to Al Dabby. I follow his posts regularly in the TastyTrade Options group on Facebook. He shares freely what he does – without pushing anyone else to do the same. Personally, I have learned a lot from him, and I have never seen him trying to take credit for the concept of 0DTE. That being said, no-one should follow blindly other people’s strategies or trades. That includes the strategy I am describing in this article. Rather we need to take responsibility and own our own trading.
Yes, 0DTE can be risky, as can other strategies. Yes, it is possible to blow up your account. For me it all boils down to risk management. That is the key to success, whether you trade 0DTE or longer expirations.
Hi John. I’ve been trying your strategy along with some other 0DTE strategies this year. Although, it seems this year is not a good fit for the strategy because of the volatility, too many trades are stopped out and many of them with a double stop. Have you made any adjustments to you strategy to keep it profitable? I will really appreciate your reply!
I trade ICs every day for a living and my strat is very similar to yours, however I manage my condors in a differant way.I get in at the bell ASAP manually 5to 8 delta 25 to 35 wide. I make sure I get 1.00 plus prem on each side. The theta crush from the open gives me an advantage when the mkt has no rational and price returns back to the open or pulls back I normally make .60 within the first 2 to 15 minutes. I cut half of my position and manage the other half by initiating my DRT rules. “Directional Relief Trade” When price breaks the first 15 minute candle “Considered and ORB outer range breakout ” I enter another CS 5 to 8 delta 25 to 30 w with the same 1.00 plus prem in the winning direction to offset IV hitting my losing short. I also have stops on the short strikes 1x the other sides prem. I can take a 25 point move without going red usually due to the early entry. Sometimes I have had to issue 4 DRTs in a day..When I am stopped out on a short strike I watch the long position carefully, sometimes I recover the full prem loss sometimes not but I try not to let it take a loss. I try to keep it and reenter that short strike again if the mkt slows or stops that direction. Double reverses are the enemy and you have to be quick to react. Sept-Oct I was 98% winrate for the day. I dont count stops as a loss only did I win the day. Maybe you will find a nugget with this or maybe not. I am in the AXE room every day.
On your breakeven IC, is the first stop loss order based on the bid price or the mark?
– Other than tax preferential treatment, why SPX over, say, SPY? commissions / liquidity?
– Are you setting stop-limit/stop market order on both call and put?
– If both, do you enter all 4 order (2 for call and 2 for put) as 1 OCO order?
– Do you buy back the IC at x% profit ? It seems like you close manually… why not set a buy limit – set and forget?
– If IC is closed for profit, do you manually cancel the stop-limit/stop markets or is there a simpler way?
– can you explain the math behind why your stop-limit/stop market orders are 4810/4825?
– “collecting approximately the same premium on both sides” => So is it fair to assume that the deltas on call is different from that of put?
– “only executed on options that expire the same day. I trade only on days when the weekly options of SPX expire – which is Monday, Wednesday, and Friday.”
Don’t tuesdays & thursdays count?
– “I avoid having multiple cases of the same strike price to avoid messing up the trade management.”
Yea.. i learned the hard way when i put the stop loss strike on the same strike as one of the IC legs. Ugh.
I have read your article on your strategy with the IC on 0DTE options with great interest and want to try it out this week. I have some questions that I would appreciate if you could find the time to respond:
1) What is the role of the long options? I suppose they only protect you at closing time if you are still in the trade. In the case of a 30 point difference between the legs on either side it then implies a loss of $3000 less premium. With your strategy you have two stop losses, one a stop limit order and the other a stop order further OTM. What happens in the case of a drastic move, say 60 points beyond the short option, too fast for the stop limit order to trip and you sell with the market order for a loss of $6000 (less premium, of course) and by closing time the price is back where it was. In this case the long option offers no protection. How about using a stop limit order for the second stop loss as well and keep the limit at the strike of the long option?
2) Can you do away with the long positions and protect yourself only with stop orders? I suppose they would call this a reverse strangle, or something. This would mean bigger profits as you do not have the cost of buying the long options. You sell only the two short ones. You could then also consider using lower deltas for your short strikes, implying a larger success rate.
3) On the IBKR platform that I use there is a feature for placing conditional orders, and I suppose it is the same with Thinkorswim. Can one perhaps use this for stop loss protection using other criteria in stead of linking it to an option closing price associated with the premium received? I am thinking of using a condition stopping me out at Market when the price of the underlying (SPX) crosses the strike level of short the option, or thereabouts.
I would really appreciate your opinion and hope you can find the time to respond.