Volatility Contraction Engine

IV Rank floor: ≥ 80 + jump

DTE band: 7-21

Default structure: Iron condor (16Δ)

Profit target: 50% of max

What this engine does

The contraction engine targets the specific situation where implied volatility has spiked sharply and is statistically likely to mean-revert. It sells short-dated defined-risk premium into the spike and harvests the decay as vol normalizes.

It requires both an IV Rank above 80 and a confirmed recent jump: by default, +20 IV Rank points in the last few days. A symbol that has sat at IVR 85 for three weeks does not qualify. The jump requirement is what filters out static high-IV names whose vol is structurally elevated rather than transiently spiking.

Short strikes target 16 delta (approximately one standard deviation) because contraction trades are short-dated and need the probability cushion. The DTE band is 7-21, and the DTE backstop is 3 instead of 21 (holding to 21 would mean holding to expiry).

Entry conditions

IV Rank ≥ 80 on the underlying.
Confirmed IV Rank jump: +20 points in the lookback window (configurable).
No earnings inside the DTE window: earnings spikes route to the earnings engine.
DTE between 7 and 21.
Short strikes near 16 delta with acceptable bid/ask on each leg.
Risk layer clears: VIX kill switch, allocation cap, sector cap.

Exit rules (priority order)

Profit target hit: close at 50% of max profit. This is the primary exit and fires quickly when vol crushes.
IV Rank normalization + untested shorts: close when IVR falls below 30 and all shorts remain at delta < 0.45. A tested position needs delta defense, not a harvest exit.
Roll ladder: triggers on tested short side or oversized move; for defined-risk, prefers close over roll.
News gate fires: high-confidence headline forces close or reduction.
DTE backstop: close at 3 DTE regardless of P&L.

When to use it / when to disable it

Use it: during episodic vol events such as sector rotations, single-name news shocks, or broad-market spike days. The engine sits dormant for long stretches and then bursts into activity when conditions align.

Disable it: if you find the short-DTE management cadence stressful, or if you specifically want the bot to run only longer-dated mechanical trades. Contraction trades resolve fast and require attention to fill quality.

Settings that control this engine