SPX Straddle - 38 DTE - Results Summary

Over the last five blog posts we looked at the backtest results for 4160 options straddles sold on the S&P 500 Index (SPX) at 38 days-to-expiration (DTE).  Eight different loss approaches were tested on these straddles.  On top of these eight loss approaches, tests were conducted with no profit taking, and profit taking at 10%, 25%, 35%, and 45% of the credit received.

For background information associated with the results in this post, please see the following posts:

• Option Straddle Series - P&L Exits
• SPX Straddle - 38 DTE - No Profit Management
• SPX Straddle - 38 DTE - Manage Profits at 10% of the Credit Received
• SPX Straddle - 38 DTE - Manage Profits at 25% of the Credit Received
• SPX Straddle - 38 DTE - Manage Profits at 35% of the Credit Received
• SPX Straddle - 38 DTE - Manage Profits at 45% of the Credit Received

The results in this post are summarized in six heat map tables.  In these tables, each row corresponds to a different loss exit percentage.  For example, the first row (25) corresponds to the strategy variations where losses were taken at 25% of the credit received.  These rows have values from 25 to 200.  The columns are a little more complicated, and are grouped first by IV rank (IVR) level, and then by profit exit percentage.  You can see that each IVR percentage level contains five columns (10, 25, 35, 45, and NA)...with each column representing a profit taking percentage.  For example, the first column lists all of the strategy variations where the IVR was less than 25% and profits were taken at 10% of the credit received.

The first table shows the average normalized P&L per day by IVR, profit taking percentage, and loss taking percentage. The highest daily returns are concentrated in the IVR > 50% columns, specifically the columns associated with profit taking at 25% and 35%.  The other area of strength was the IVR < 25 and profit taking at 10%.

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The second table shows the average P&L per trade by IVR, profit taking percentage, and loss taking percentage.  The area with the highest P&L per trade values was IVR > 50% and profit taking at 25%, 35%, and 45%.  Another area of strength was the IVR >25% and profit taking at 35%.

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The third table shows the win percent / win rate by IVR, profit taking percentage, and loss taking percentage.  The highest win rates occur at lower profit taking levels...the lower the profit taking percentage, the higher the win rate for a given IVR grouping.  This highest win rates occur with an IVR < 25%, and profit taking at 10%....all variations have 96% win rates except for the (25:10) variation.

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In the fourth table, we see the Sortino Ratio by IVR, profit taking percentage, and loss taking percentage.  The highest Sortino Ratios were associated with the lowest profit taking percentage of 10%, at IVRs of < 25%.  It is also interesting to note that the loss taking at 25% has a number of IVR / profit taking percentages combinations that yield high Sortinos.

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The fifth table shows the profit factor by IVR, profit taking percentage, and loss taking percentage.  The largest profit factor values occurred at IVRs < 25% and profit taking at 10%...regardless of the loss taking percentage.  Some of the highest profit factors occurred in regions with high Sortino values.

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The last table shows the average days-in-trade (DIT) by IVR, profit taking percentage, and loss taking percentage.  What does this show...the quicker the profit taking, the shorter the time spent in a trade...fairly obvious results here.

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Which variation of the 38 DTE straddles is best?  That depends on your risk tolerance...there's no right answer.  If I was going to trade a 38 DTE ATM SPX straddle, I would gravitate towards the variation with the highest win rates...taking profits at 10%, with IVR < 25% and a loss threshold in the 50% to 75% range.  You can find links to all of my SPX straddle articles on the SPX Straddle Summary Page.

In the next post, we will start looking at the backtest results for the short straddle on the SPX at 45 DTE.


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