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Monday, January 14, 2019

Analysis of the CBOE CNDR Index - an Iron Condors benchmark

The CBOE’s CNDR index is a benchmark that tracks the hypothetical performance of a monthly SPX Iron Condor with short options at ~20 deltas, and long options at ~5 deltas. No trade adjustments/defense of any sort.

Let's have a look at its historical performance, illustrated on the CBOE website at http://www.cboe.com/index/dashboard/CNDR#cndr-performance


A quick looks tells us that, yes, it has been an overall profitable strategy, but there is definitely a big different between the first 22 years and the last 9.

The period from January 1988 to January 2010 saw the index take off from 99.29 to 771.31. That's a +9.77% Compound Annual Return. Not bad. However, from January 2010 to January 2019 the index has gone nowhere. In fact it is slightly down from 771.31 to 713.49. That's a Compound Annual Return of -0.86%. And these last 9 years have taken the Compound Annual Return down to 6.57% for the whole 31-year period (1988-2019).

Now, you can use different Iron Condor variations. You know: different distances, entry rules, adjustment strategies and so on. But regardless, to me, the chart above is telling one undeniable truth: The environment of the last few years has not been ideal for the Iron Condor strategy. At least not on the SP500 Index. I suspect that due to the high correlations, and persistent historically low volatility of the last few years, the same thing would have happenned with the Dow Jones, The NASDAQ or the Russell.

Are Iron Condors dead? Did they permanently stop working?

Just when you are about to abandon a strategy, cycles of out-performance may be around the corner. CNDR may take more time to get out of this slump. But saying that a particular approach is permanently "dead" is usually a mistake. All strategies go through periods of draw-downs. It is inevitable. Sometimes, these periods last years and that's hard to swallow, but it is a lesson to always use different strategies and to not get married to only one.

For more information on the CBOE CNDR Benchmark Index:
Methodology Paper
CBOE S&P500 Iron Condor Index (CNDR)



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