Analyzing Profit Distribution

So my new system flagged a trade on Monday.  The market took a brief dip and then went higher on Monday and a bit more on Tuesday.  The put credit spread is firmly in the black for now. The next thought might be to complete this position as an iron condor. Briefly, an iron condor is an option position which really is comprised of two vertical spreads. Usually a put credit spread and a call credit spread. This is a market neutral strategy where you expect the underlying to stay fairly put so that both of your credit spreads expire worthless and you obtain maximum profit. Of course, markets don't always stay put and iron condors have pretty bad risk/rewards with extremely high success probabilities. I've read several cases where folks have been making consistent profits month after month for a year or two only to have one bad month wipe out all of the profit and then some. Iron condors are quite dangerous like that. You are short a ton of gamma.

My initial trading system is bullish only because I've never had any success being short of the indexes and being consistently profitable. So why would I entertain the idea of putting on a bear call spread now? Two things, one, if the underlying (in this case, IWM) moves much higher, the distance between my bull and bear spreads are substantial making the probability of both expiring worthless much greater. Second, I have a pretty good idea what the profit distribution looks on my existing trading system to hopefully discern a good spot to be relatively 'safe'.

(click to enlarge)

This profit distribution shows that most of my positions expire profitable and they're between 0-5%. A few make it as far as 10-15%. The 30-35% outliers concern me slightly because I think I might have a data error somewhere. But let's assume I don't and that 8 of the positions out of 100 or so make it to 20% or better. It would be relatively safe to put on a bear call spread when the underlying hits over 5% profitable. Most of my trades are ~10% out of the money, so that takes care of about 90+% of the cases of my bear call spread being a loser. And of course, this is offset by the fact that my bull put spread will certainly expire out of the money which adds to my bear call 'padding' should the short call get breached.

As of right this minute, my put credit spread was put on with IWM trading around $48. It's currently trading at $50.50 which represents about a 5% gain at this point. I haven't figured out my plan on this yet, so I may miss the boat to try it, but if it continues upward, I may give it a go and see what happens.

I'll keep you posted (after the fact).   Do not follow me. I could lose you lots of money.