A static options strategy that always sells the same iron condor at 9:30 every Tuesday ignores what the market is telling you that day. On a high-IV day, the wings are underpriced. On a trending day, the short straddle is in trouble from the start.
An adaptive strategy changes its spread type based on the signals present at entry
time. alphabench's Quant agent can backtest these multi-mode strategies through the
backtest_adaptive_strategy tool, which runs the full historical option chain logic for
each mode separately and stitches the results together.
1. The core idea
An adaptive strategy defines two or more modes and a switching rule that selects a mode at entry time. The most common structure for Indian weekly options:
| Mode | When to use it | Example spread |
|---|---|---|
| Range-bound | IV low, market sideways | Short iron condor |
| High-vol | IV spike, wide expected move | Short wide strangle |
| Directional | Trend confirmed, momentum strong | Bull call spread / Bear put spread |
| Defensive | IV crushed, low liquidity | Skip the trade entirely |
The switching logic can be as simple as a single IV threshold or as complex as a combination of regime indicators.
2. Backtest an IV-adaptive iron condor
"Backtest an adaptive strategy on BANKNIFTY weekly options. Default mode is short iron condor: sell ATM call and put, buy 200-point wings. Switch to short strangle (300-point width) when IV percentile is above 70. Skip the trade entirely when IV percentile is below 20. Enter every Tuesday morning, exit Thursday 15:15. Test the last 2 years."
The Quant agent builds a multi-mode spec and calls backtest_adaptive_strategy:
- For each entry date, it checks the IV percentile at that moment
- Selects the appropriate mode (condor, strangle, or skip)
- Runs the full option chain reconstruction and per-leg P&L for that mode
- Stitches the results into a single equity curve
You get a unified equity curve plus a mode breakdown table showing how many trades ran in each mode and the P&L contribution per mode.
3. Trend-adaptive directional spread
When the underlying is trending strongly, delta-neutral strategies lose money. An adaptive strategy can switch to a directional spread on trending days:
"Backtest an adaptive strategy on NIFTY weekly options. If the 5-minute bar at 9:30 shows the index is more than 0.8% above yesterday's close AND ADX is above 25, enter a bull call spread (buy ATM call, sell 100-point OTM call). Otherwise enter a short ATM straddle. Exit at 14:30 or when P&L hits +₹3,000 or -₹2,000. Test 18 months."
This is a two-mode adaptive strategy: trend-confirmed goes directional, no-trend goes neutral.
The result shows whether being directional on trend days actually helped:
- Mode A (bull spread): P&L from directional trades only
- Mode B (short straddle): P&L from neutral trades only
- Combined: full equity curve
If Mode A contributes positively and Mode B is the drag, consider dropping Mode B or tightening the trend-detection filter.
4. Reading adaptive strategy results
Adaptive strategy backtests return more detailed output than static spreads:
Mode allocation table:
Mode Trades Win% Avg P&L Total P&L
──────────────────────────────────────────────────
Iron condor 84 67% +₹1,450 +₹1,21,800
Short strangle 22 55% +₹820 +₹18,040
Skipped 18 - - -
Mode timing chart: A timeline showing which mode ran on which date. Look for clusters. If Mode B always runs in a specific month, there may be a seasonal pattern worth investigating.
Combined equity curve: The stitched curve with mode transitions marked. A smooth curve suggests the switching logic is working. A jagged curve with drawdown clusters in one mode suggests that mode needs refinement.
5. Testing the switching rule
The switching rule is itself a parameter that can be swept:
"Sweep the IV percentile threshold from 50 to 80 in steps of 5 for the condor-to-strangle switch. Which threshold gives the best Sharpe on the combined strategy?"
See Parameter Sweeps for the full sweep workflow. The same principles apply: look for a broad ridge, not an isolated peak.
6. Defensive mode: skip the trade
Not all market conditions are tradeable. Adding a "skip" mode is often the most valuable thing you can do:
"Add a defensive mode: if IV percentile is below 20 AND the previous day's range was less than 0.3% of spot, skip entering. Otherwise run the default condor."
In low-IV, low-volatility regimes, premium is thin and the risk-reward on short options deteriorates. The skip mode prevents entering bad trades. A negative P&L contribution of zero beats a small loss.
7. Adaptive strategies vs multiple separate strategies
An alternative to adaptive is running two separate static strategies with independent capital allocation. Adaptive is better when:
- The market condition that determines mode is observable before entry (IV at 9:30)
- The modes are mutually exclusive (you can't run both at the same time)
- You want a single equity curve to evaluate the combined logic
Multiple separate strategies are better when:
- Modes can run simultaneously (different underlyings, different sessions)
- You want to track and validate each strategy independently
- Capital allocation between modes should be flexible
8. Validate before deploying
An adaptive strategy with multiple modes has more degrees of freedom than a static one. Walk-forward testing is especially important:
"Run a walk-forward test on the adaptive condor-to-strangle strategy with 6 folds and a 70/30 split. Check whether the IV-percentile threshold stays stable across folds."
If the optimal IV threshold shifts dramatically across folds (e.g. 55 in fold 1, 75 in fold 3), the switching rule isn't robust. A stable threshold across folds is a good sign.