Thursday, October 29, 2015

SPX Straddle - 73 DTE - Results Summary

Over the last five blog posts we looked at the automated backtest results for 4160 options straddles sold on the S&P 500 Index (SPX) at 73 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:

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 rows associated with loss management greater than 50% and profit taking at 25%, 35%, and 45%.  So far, the highest P&L per day readings occurred with the 45 DTE variations at 25% and 35% profit taking.  The best 73 DTE readings were lower than the best readings from the 38 DTE, 45 DTE and 59 DTE variations.

73 DTE SPX Short Straddle Summary Normalized Percent P&L Per Day
(click to enlarge)

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 45%, and no profit management (NA).  Recall that the IVR > 50% region only entered approximately 20% of all possible trades.  Therefore, the IVR <50% region entered approximately 80% of all possible trades...this region has fairly good per trade returns for many combinations of profit and loss taking.

73 DTE SPX Short Straddle Summary Normalized Percent P&L Per Trade
(click to enlarge)

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 individual win rates (96%) occur with an IVR < 25% and profit taking at 10%.  This section was also the strongest for the 38 DTE, 52 DTE, and 66 DTE trade variations.  Other than this same section at 38 DTE and 66 DTE, we have not seen win rates of 96% with any other variations of straddle testing up to this point.

73 DTE SPX Short Straddle Summary Win Rate
(click to enlarge)

In the fourth table, we see the Sortino Ratio by IVR, profit taking percentage, and loss taking percentage.  The highest Sortino values were present across the filter levels of IVR > 25% and IVR > 50%, loss taking between 75% and 150%, and profit taking at 35%, 45%, and NA.  The best Sortinos at 73 DTE were only lower than the best Sortinos at 38 DTE, 45 DTE and 59 DTE.

73 DTE SPX Short Straddle Summary Sortino Ratio
(click to enlarge)

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 above 10%, and loss taking percentages between 75% and 150%.

73 DTE SPX Short Straddle Summary Profit Factor
(click to enlarge)

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.

73 DTE SPX Short Straddle Summary Days In Trade
(click to enlarge)

Which variation of the 73 DTE straddle is best?  If I was going to trade a 73 DTE ATM SPX straddle on a monthly basis, I would gravitate towards the non-IVR filtered version that takes profits between 25% and 35%, and losses around 75%.  If I 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 35% to 45% and loss taking at 75% to 100%...the same variables that I chose for my opportunistic 66 DTE trade.  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 80 DTE.

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yoshi54 said...

Every day I am here, looking at the new post that you have up. Been very helpful to me. This information I have not been able to find ANYWHERE else on the web.
After the 80 days set of posts, where do you go next? Will we see a comparison of the Russell to the SPX?
So thankful for your hard work, and willingness to post this for the rest of us without the resources and understanding to do what you have done.

Dave R. said...

Hi Josh,

Thanks for the very nice feedback...makes my day!

After the 80 DTE posts, I will write one or two posts to summarize the results. After that, I will probably look at the RUT short straddle...but not completely sure yet.

Thanks again for your positive feedback!


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