SPX Straddle - 52 DTE - Manage Profits at 10%

In this post we look at the backtest results of selling a one-lot, at-the-money (ATM) straddle on the S&P 500 Index (SPX), initiated at 52 days-to-expiration (DTE).  In this second post of five on 52 DTE straddles, we look at trades that use the same loss exits as shown in the first post, and in addition, take profits at 10% of the credit received.  The results displayed in this post represent data from 824 individual trades entered by the automated backtester.

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 Straddle Series - P&L Exits.

In the trade metrics tables, some of the metrics rows have been highlighted 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 (P&L % / Trade - 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 the y-axis scale is the same in all of the 52 DTE equity curves.


No IV Rank Filter

In this section we will look at the results of entering one trade for every monthly expiration regardless of the implied volatility rank (IVR) of the SPX on the date of entry.  Entering these trades at 52 DTE and utilizing our loss exits and 10% credit exits (described here), resulted in the equity curves below.  Very solid performance for several of the variations since mid-2012.

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The trade metrics for these different exits are shown in the table below.  A number of the variations have win rates at 91%...but all variations had trouble at the end of 2008.  The (125:10) variation had the highest P&L % / day reading, highest overall P&L % value, and the highest win rate (tied with five other variations).

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The table below shows the distribution of returns in five-number summary format.  Hat-tip to tastytrade.

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Below are three sets of scatter plots for selling 52 DTE ATM SPX straddles. The first image contains one scatter plot per strategy and shows P&L in percentage terms versus IVR for the SPX. The IVR was captured on the day each trade was initiated.  There is a trend of increasing P&L with increasing IVR...a trend that has repeated across all of the tests.

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The next image shows P&L in percentage terms versus initial ATM IV. This ATM IV was captured on the day each trade was initiated.  Higher IV resulted in higher returns, but the majority of all trades occurred at lower IV, below 35.

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The third image shows P&L in percentage terms versus days-in-trade (DIT).  When managing losses early (25%,  50%), the losses were fairly evenly distributed across DIT.  As the loss management becomes less aggressive (125%, 150%, 175%, and 200%), the loss thresholds were were rarely hit.  We still had losing trades, with losses realized at expiration...but these losses were mostly less than our threshold value at expiration.

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IV Rank > 50% Filter

In this section we will look at the results of entering one trade for every monthly expiration only when the IVR of the SPX is greater than 50% ( >50% ).  Entering these trades at 52 DTE and utilizing our loss exits and 10% credit exits (described here) resulted in the equity curves below.

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The trade metrics for these different exits are shown in the table below.  There are significantly fewer trades that meet the >50% IVR criteria.  This IVR criteria caused many of these variations to have negative total returns, and negative P&L per day readings...even though the win rates were nearly all 89%.

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The table below shows the distribution of returns in five-number summary format.

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IV Rank < 50% Filter

In this section we will look at the results of entering one trade for every monthly expiration only when the IVRof the SPX is less than 50% ( <50% ).  Entering these trades at 52 DTE and utilizing our loss exits and 10% credit exits (described here) resulted in the equity curves below.

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The trade metrics for these different exits are shown in the table below.  Using the lower IVR filter improved many of the metrics over the non-IVR filtered or IVR > 50% filtered variations.  The top variations in the table below had higher P&L per day readings, higher total P&L values, and higher win rates than the non-IVR filtered and IVR > 50% filtered variations...this is surprising and breaks the trend that we have seen up to this point.

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The table below shows the distribution of returns in five-number summary format.

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In the next post we will look at the backtest results of 52 DTE ATM SPX short straddles using the same loss thresholds as above, but with profit taking occurring at 25% of the credit received.


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