RUT Strangle - High Loss Threshold - 80 DTE

This post reviews the backtest results of selling one-lot options strangles on the Russell 2000 Index (RUT), initiated at 80 days-to-expiration (DTE).  The results in this post were derived from 2200 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.

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 the 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 RUT strangle series have equity curves with identical y-axis scales, unless otherwise noted.

4 Delta Short Strikes

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(click to enlarge)

For the 80 DTE, 4 delta RUT short strangles, the top exit approaches indicated by the metrics were the: 200:75, and 200:50 / ExOut 200:50 variations.  The highest return occurred with the 200:75 exit.


6 Delta Short Strikes

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(click to enlarge)

For the 80 DTE, 6 delta RUT short strangles, the top exit approaches indicated by the metrics were again the: 200:75, ExOut 200:50, and 200:50 variations.  The highest return again occurred with the 200:75 exit.


8 Delta Short Strikes

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(click to enlarge)

For the 80 DTE, 8 delta RUT short strangles, the top exit approaches indicated by the metrics were the: 200:75, 200:50, and ExOut 200:50 variations.  The highest return again occurred with the 200:75 exit.

With the 80 DTE tests, the highest average P&L per day readings occurred with the 8 delta short strike variations, with an average of 0.17% per day.  The highest overall P&L per day reading was 0.21% per day and was tied between the 6 delta 200:75 variation and the 8 delta 200:50 variation.

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.  This is consistent across different DTE entries.

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The second image 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...similar to the 45 DTE scatter plots.  This trend is also consistent across different DTE entries.

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The last image 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, 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.  This is also consistent across different DTE entries.

(click to enlarge)

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

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

As always, feel free to use any of the images/information on my blog...just be sure to reference this blog when sharing the information with others.


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