SPX Straddle - 59 DTE - Results Summary

Over the last five blog posts we looked at the backtest results for 4120 options straddles sold on the S&P 500 Index (SPX) at 59 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 - 59 DTE - No Profit Management
• SPX Straddle - 59 DTE - Manage Profits at 10% of the Credit Received
• SPX Straddle - 59 DTE - Manage Profits at 25% of the Credit Received
• SPX Straddle - 59 DTE - Manage Profits at 35% of the Credit Received
• SPX Straddle - 59 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 implied volatility 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 NA (taken to expiration).  So far, the highest P&L per day readings have occurred with the 45 DTE variations at 25% and 35% profit taking, but the best 59 DTE readings were very close.  What is interesting about the best P&L per day readings for the 59 DTE strategies, is that the best numbers occurred at the lowest loss levels (25%, 50%, and 75%).  In contrast, the best numbers at 45 DTE occurred at higher loss levels (125%, 150%, 175%, and 200%).

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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%, profit taking at 25%, 35%, 45%, and no profit management (NA).  These are some of the best P&L per trade numbers we've seen so far.  Also, a pattern that we noticed with the 45 DTE trades is present here as well...take a look at the trade returns in the IVR < 25% section with profit management at 25%, 35%, and 45%.  The returns in this section at 59 DTE are much better than the returns in this section at 38 DTE, 45 DTE, and 52 DTE.  This holds in the < 50% section as well.

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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.  The highest individual win rates occur with an IVR > 50% and profit taking at 10% and 25%.  The win rates at 59 DTE were some of the highest we've seen across all of the DTE tested up to this point.

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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 occurred in four distinct regions:

• IVR < 25%, profit taking at 10% and 25%, and loss taking at 175% and 200%
• IVR > 25%, profit taking at 25%, 35%, 45%, and NA, and loss taking at 25%, 50%, and 75%
• IVR > 50%, profit taking at 25%, 35%, 45%, and NA, and loss taking at 25%, 50%, and 75%
• No IVR filter, profit taking at 25%, 35%, 45%, and NA, and loss taking at 25%, 50%, and 75%

At other DTE, the NA level (trades taken to expiration for a profit) did not have high Sortino Ratios.  But this profit taking level, NA, had the strongest numbers at this DTE.

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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 were associated with an IVR > 50%, profit taking at 25%, 35%, 45% and NA, and loss taking percentages of 25% through 125%.  In general, areas of strong profit factor numbers overlapped with three of the four areas of strong Sortino Ratios.

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The last table shows the average days-in-trade (DIT) by IVR, profit taking percentage, and loss taking percentage.  The quicker the profit taking, the shorter the time spent in a trade.  Limiting your losses to 25% of the credit received also took you out of the trades sooner.

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Which variation of the 59 DTE straddle is best?  As I've mentioned before, that depends on your risk tolerance.  If I was going to trade a 59 DTE ATM SPX straddle on a monthly basis, I would gravitate towards the non-IVR filtered version that takes profits at 25% and losses between 75% and 125%.  If I just wanted to trade these more opportunistically, then I would look for trades when the IVR is greater than 50%, and manage with profit taking at 25% and loss taking at 50% to 100%.  Another opportunistic area is IVR greater than 50%, carried to expiration or exited for a loss between 50% and 75%.  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 automated backtest results for the short straddle on the SPX at 66 DTE.


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