Can I Sell Iron Condor In A Low Volatility Environment?

I know there are people out there manage to make consistent 20% by just simply selling major indexes such as SPX and/or SPY continuously. One question I had was about Implied Volatility. Would such trades still work even in the low IV environment? Logically, it should right? Otherwise these people who are doing it wouldn’t be able to generate large number of trades?

Below are three pieces of encouraging information to support the statement that selling Iron Condor in a low volatility environment is indeed doable.

1) Cameron Skinner

I came across to his story when listened to this podcast by Option Alpha, Cameron Skinner has managed to earn 22% annually by selling options everyday. He basically sells SPX contracts everyday and close SPX contracts everyday based on the date to expiration. For example, he would sell a 90 days to expiration Iron Condor SPX contract and close it down after 30 days.

2) A back test study comparing Iron Condor to Strangle

I dug a little deeper and found a couple of videos. The first one is shown below was found on Youtube. The main focus for the video was to compare Iron Condor to Strangles, but the take home message for me was that Implied Volatility did not matter that much when looking at a long time horizon.

This study included 2008, 2009 data so there was a huge jump in volatility around that time. As a result, the test indicated that trades placed on lower IV performed better, which could be somewhat misleading since it was a black swan event. (NOTE: the study used VIX 17.5% as the cut off. Higher than VIX 17.5% was considered high, and below that it was considered low). However, the take home message was that even including such black swan event, selling Iron Condor works in both high and low IV environment.

It is important to point out that the time to expiration for the options used in the study was 60 days.

3) A Tastytrade.com video

The other video I found was on Tastytrade.com and it takes about how to use Iron Condor in IRA accounts because of margin limitation in those types of accounts. The main focus of the video was to compare unmanaged trades (let it expire) or exiting at 50% of max profit. Exiting early seems to yields a higher Profit and Lose number (PNL).

They also compared trading high IV Rank and low IV Rank . As it turned out, high IV Rank trades had a better results in terms of PNL. However, it is important to note backtesting of these options trades were based on 45 days to expiration.

Conclusion

Based on these findings I would say selling Iron condor in low IV environment works, at least with SPX. I am going to set up a real life trading experiment to see if this conclusion lives up to it.

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Tony

I have been trading options since 2010 and have been testing and experimenting with various trading styles. Fundamental Analysis based, Technical Analysis based, Trend Following, Day Trading, Swing Trading, etc.

My primary option trading strategies incorporate volatility and I am constantly experimenting with various trading strategies to improve my PNL.

I hold two Master’s degrees (MSc and MBA) with career experience as a cancer research scientist and a digital marketer.

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