SPX Straddle - 66 DTE - No Profit Management

This post looks at the results of selling a one-lot straddle on the S&P 500 Index (SPX), initiated at 66 days-to-expiration (DTE).  This is the first post of five on 66 DTE straddles, and will only look at loss exits...the other four posts will explore different profit exits on top of the loss exits in this post.  The results displayed in this post represent data from 832 individual trades entered by the automated backtester.

For background on the setup for the automated 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 66 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 66 DTE and utilizing our loss exits (described here) resulted in the equity curves below.  These equity curves look much better than the prior 59 DTE curves.

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The trade metrics for these different exits are shown in the table below.  The win rates are not great, and are slightly worse than the corresponding 59 DTE variations.  The total P&L % numbers, on the other hand, are significantly larger than those at 59 DTE.  As a reminder, these trades are either exited at expiration OR at the designated loss level.

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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 two images of scatter plots for selling 66 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.  The profitable trades follow a trajectory that curves up as IVR increases...same pattern that we continue to see.

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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.  Most of the trades are clustered in the 10 to 35 IV region.

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Even without profit management or an IVR filter, approximately 60% of the trades were profitable at a loss management level of 75% or greater.  The trend of increasing IV yielding higher returns is barely perceptible in these scatter plots.


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 66 DTE and utilizing our loss exits (described here) resulted in the equity curves below.  As we've seen in my prior posts, the curves have long periods that are flat...these are times when no trades were taken due to the IVR being below the filter level.  This is a familiar pattern that we have seen with all of the trades using the IVR > 50% filter.

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The trade metrics for these different exits are shown in the table below.  These trades have better win rates, significantly better returns per day, and better returns per trade than the non-IVR filtered trades.   These latter two metrics were about twice as good.  The total P&L% for these filtered trades was about half the total P&L% for the non-IVR filtered.  Also note, that only a little more than 20% of the total trades satisfied the IVR filter of  > 50%.

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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 IVR of the SPX is less than 50% ( <50% ).  Entering these trades at 66 DTE and utilizing our loss exits (described here) resulted in the equity curves below.  2015 really had a huge positive impact on these trade variations.

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The trade metrics for these different exits are shown in the table below.  These trades have lower win rates and lower total P&L per day and P&L per trade numbers than the non-IVR and IVR > 50% filtered trades shown above.

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

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Similar to the 59 DTE short straddles without profit management, the 66 DTE SPX short straddles performed reasonably well.  We now have our baseline for the 66 DTE strategies, so we can move on to the profit taking versions.

In the next post we will look at the automated backtest results of 66 DTE SPX short straddles using the same loss thresholds as above, but with profit taking occurring at 10% of the credit received.


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