SPX Straddle - 80 DTE - Manage Profits at 35%

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 80 days-to-expiration (DTE).  In this fourth post of five on 80 DTE straddles, we look at trades that use the same loss exits as shown in the first post, and in addition, take profits at 35% of the credit received.  The results displayed in this post represent data from 808 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 80 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 80 DTE and utilizing our loss exits and 35% credit exits (described here), resulted in the equity curves below.  Because of the larger profit taking, these curves are not smooth, and are similar to other 35% profit taking variations at lower DTE.

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The trade metrics for these different exits are shown in the table below.  The (100:35) variation stands out with the highest P&L % per day reading, highest P&L % per trade value, highest total P&L %, and highest win rate (of 73%).  Five of the eight variations had win rates of 73%.

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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 80 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.  As we noticed in the prior articles, there is a very obvious trend of increasing P&L with increasing IVR.

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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 the profitable and unprofitable trades occurred at lower IV...below 30.

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The third image shows P&L in percentage terms versus days-in-trade (DIT).  We see the same two patterns that we observed in the prior articles...when managing losses early (25%,  50%), the losses were fairly evenly distributed across DIT.  As the loss management becomes less aggressive (75% and higher), we see that the losses are concentrated later in the trades.  Also, as we've seen in the other posts, most of these losses were not realized until expiration...meaning that many of these particular losses were less than our loss threshold values.  In order to collect 35% of the credit, you had to stay in these trades longer...about 35 days before you start taking profits.

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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 80 DTE and utilizing our loss exits and 35% 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.  As we've seen in the earlier articles, only about 20% of the trades meet the >50% IVR criteria.  The best variation of the group was the (200:35) straddle, followed by the (100:35) straddle.  The win rate was 89% for five of the eight variations.

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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 80 DTE and utilizing our loss exits and 35% 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.  The metrics for these IVR filtered variations were slightly worse than the unfiltered variations.  The top performing strategies were the (100:35) and (175:35) variations.

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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 80 DTE ATM SPX short straddles using the same loss thresholds as above, but with profit taking occurring at 45% of the credit received.


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