The Iron Shark Strategy Update

by Francesco Placci

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In this post, we analyze the progress of the Iron Shark strategy from 2010 to today. 

The Iron Shark strategy is a delta neutral strategy that aims to sell options to collect theta, the passage of time.

Its peculiarity is that it has inside a sort of protection against the adverse events, the so-called black swans events, which can be very dangerous for option sellers.

 

Enjoy the reading

Transcription

Hi guys and welcome.

Today we talk about options and in particular about the Iron Shark strategy. 

 

I am Francesco Placci, Research and Development manager of the Unger Academy.

 

Many of you have asked for an update on the Iron Shark strategy. 

So let's see together its behavior in Out of Sample.

 

The Iron Shark Strategy

 

Well, this is the big test of the Iron Shark strategy from 2010 until today.

 

What is the Iron Shark strategy?

 

It is a delta neutral strategy that aims to sell options to collect theta, the passage of time.

 

I use it primarily on the SPX options and its peculiarity is that it has inside a sort of protection against the adverse events, the so-called black swans events, which can be very dangerous for option sellers.

 

It is a strategy that is always on the market, except for those rare cases as explained within the trading program, during which our filters, based on the volatility term structure, tell us that it is not the time to sell options because excessively risky.

 

I designed the strategy in early 2017 and I've been using it ever since.

The chart's areas

You can see in this graph three different coloured areas.

 

Blue, pink, and yellow, which correspond to three different periods.

 

In particular, we can consider the blue area the in-sample period, while the pink area corresponds to the first out of sample period after the 2018 workshop, and the yellow area represents the second out of sample period, after the release of the Iron Shark program with the Unger Academy.

 

We can see a good regularity of the equity line, but certainly, due to the greater volatility that markets have shown in the last two years, the final part of the equity line is certainly less smooth but equally profitable.

 

Why that?

 

Because from 2010 until 2017 the markets have not experienced collapses except a decline in august 2015 that lasted a few days, while in 2018 we saw 2 major crashes: in January and between October and December.

 

Also in 2020, we experienced one of the worst declines in the market for its strength and speed.

 

So let's have a look at the statistics.

 

The strategy statistics

 

We see that 223 trades have been made with a total gain of about 92.000$.

 

The profit factor is 3.7 and the profitable trades are about 77%.

 

The Max drawdown of the strategy is slightly higher than 4.000$, but it is a drawdown close to close.

 

So we must consider that the interest rate drawdown can be at least 50% higher.

 

The Iron Shark return

 

The margin required by the brokers to trade this strategy is about 15.000$ using the portfolio margin account or the options on a miniS&P future, and the return of the strategy from 2010 until today corresponds to about 600% of the margin required.

 

For those who use the classic Reg T margin instead, the return is reduced to 200% which corresponds to about 20% per year, which I think it remains a respectable result.

 



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Francesco Placci

Hi, I'm Francesco Placci, a professional trader since 2005 thanks to the systematic approach to the markets.

My skills range from trading on index futures to bonds, from stocks to commodities, with a particular focus on volatility and options, which I consider to be among the most versatile and fascinating instruments available to traders.

After an experience with leading Italian credit institutions where I learned the basics of institutional finance, I became a successful independent trader, with great personal satisfaction.

Founder of Algoritmica.pro, in 2019 I joined Unger Academy as head of Research and Development.