SPX Strangle - High Loss Threshold - 45 DTE

This is the first article in a series where we will look at the performance of selling options strangles. For background on the setup for the backtests, as well as the nomenclature used in the charts and tables below, please see the introductory article for this series: Option Strangle Series - Higher Loss Thresholds

This post looks at a one-lot strangle on the S&P 500 Index (SPX), initiated at 45 days-to-expiration (DTE).  The results displayed below represent data from 2300 individual trades entered by the backtester.  The results are separated by the delta of the short strikes.

In the trade metrics tables, I have highlighted some of the metrics rows to indicate values that are in the upper half of the readings.  One of the metrics to note is the average P&L per day in percentage terms (Trade Details (%) - Avg. P&L / Day).  This is a measure of the P&L per day normalized to the maximum initial portfolio margin (initial PM) required for that trade run...it tells us the effectiveness of theta with respect to our margin requirement.

4 Delta Short Strikes

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For the 45 DTE, 4 delta SPX short strangles, the top exit approaches indicated by the metrics were: 300:50, and 200:75.


6 Delta Short Strikes

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For the 45 DTE, 6 delta SPX short strangles, the top exit approaches indicated by the metrics were again the 300:50 and 200:75.


8 Delta Short Strikes

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For the 45 DTE, 8 delta SPX short strangles, the top exit approaches indicated by the metrics were: ExOut NA:50 and 300:50.  Recall that the ExOut variations will exit: 1) if the market moves below the short put, or 2) if the market moves above the short call, or 3) if the profit is 50% of the credit received, or 4) at expiration...which ever comes first.

Below are three images of scatter plots for the 45 DTE 8 delta short strangles.  The first image contains one scatter plot per strategy and shows P&L in dollar terms versus days-in-trade (DIT).  There are a couple of visible trends in this set of scatter plots: 1) in general, the longer a trade is held, the higher the profit, and 2) the largest losses tend to occur at lower DIT values for trades with a loss based exit.

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The second image shows P&L in terms of the initial at-the-money (ATM) implied volatility (IV) of the SPX.  This ATM IV was captured on the day each trade was initiated.  In general, there is a trend that higher P&L numbers are associated with higher ATM IV numbers.

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The last images shows P&L in terms of the initial IV Rank for the SPX.  The IV Rank was captured on the day each trade was initiated.  In general, there is a trend that higher IV rank is associated with higher P&L.  Also, if you trade only when IV rank is higher, you can eliminate many losing trades.

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In the next post we will look at these same deltas and exits, but on the SPX 52 DTE short strangle.


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