RUT Strangle - High Loss Threshold - 45 DTE

This is the first article in a series that will review the performance of selling options strangles on the Russell 2000 Index (RUT).  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 selling one-lot strangles on the RUT, initiated at 45 days-to-expiration (DTE).  The results displayed below represent data from 2288 individual trades entered by the backtester.  The results are grouped by the delta of the short strikes.  For example, a 4 delta strangle is constructed by selling a -4 delta put, and selling a +4 delta call.

In the trade metrics tables, I have highlighted some of the rows of data 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 RUT short strangles, the top exit approaches indicated by the metrics were the ExOut NA:50, 200:75, and 200:50/ExOut 200:50.


6 Delta Short Strikes

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


8 Delta Short Strikes

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For the 45 DTE, 8 delta RUT short strangles, the top exit approaches indicated by the metrics were: ExOut NA:50, 200:75 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 sets of scatter plots for the 45 DTE 8 delta short strangles.  The first set contains one scatter plot per strategy and shows P&L in dollar terms versus days-in-trade (DIT).  The one obvious trend in these scatter plots is that the largest losses tend to occur at lower DIT values.  Also, as the DIT increase, the losses tend to get smaller for most of the exit approaches.

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The second set of images shows P&L in terms of the initial at-the-money (ATM) implied volatility (IV) of the RUT.  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.  Also, the largest losses tend to occur at lower IV.

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The last set of images shows P&L in terms of the initial IV Rank for the RUT.  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 note that 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 RUT 52 DTE short strangle.


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