SPX Strangle - High Loss Threshold - 80 DTE

This post looks at selling one-lot options strangles on the S&P 500 Index (SPX), initiated at 80 days-to-expiration (DTE).  The results in this post were derived from more than 2300 individual trades entered by the backtester.  Other 80 DTE variations will be posted on my Twitter feed, @DTRTrading.

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

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.

Also note, that all of the blog posts for the SPX strangle series have equity curves with identical y-axis scales.

4 Delta Short Strikes

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For the 80 DTE, 4 delta SPX short strangles, the top exit approaches indicated by the metrics were the: 200:75, 100:50, and 300:50 variations


6 Delta Short Strikes

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For the 80 DTE, 6 delta SPX short strangles, the top exit approaches indicated by the metrics were the: 200:75, 300:50, and 100:50 variations.


8 Delta Short Strikes

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For the 80 DTE, 8 delta SPX short strangles, the top exit approaches indicated by the metrics were the: 300:50, ExOut NA:50, and 200:75 variations.

With the 80 DTE tests, the highest average P&L per day reading occurred with the 8 delta short strike variation, with an average of 0.24% per day.  The highest overall P&L per day readings occurred with the 8 delta 300:50 variation, at 0.32% per day.

Below are three images of scatter plots for the 80 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 is one visible trend in this set of scatter plots: 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...similar to the 45 DTE scatter plots.

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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.  Both of these trends were visible in the 45 DTE scatter plots as well.

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In the next post I will summarize the results for the SPX short strangle strategy.

FYI, I am showing the results for higher delta strangles (at the same DTEs), as well as 8 additional exits on my Twitter feed...I won't be posting these additional results to the blog.

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