Thursday, November 5, 2015

SPX Straddle - 80 DTE - Results Summary

Over the last five blog posts we looked at the automated backtest results for 4040 options straddles sold on the S&P 500 Index (SPX) at 80 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 profit taking at 25%, 35%, 45%, and NA.  The 45% profit taking level was clearly the strongest.  So far, the highest P&L per day readings occurred with the 45 DTE variations at 25% and 35% profit taking.  The best 80 DTE reading (1.64%) was the highest across all DTE variations.

80 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).  Also, as we noticed in the 59 DTE summary post, the trade returns in the IVR < 25% section with profit management at 25%, 35%, and 45% are very good.  The returns in this section at 80 DTE are very strong, and second only to the corresponding section at 66 DTE.

80 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 (95%) occur with an IVR > 50% and profit taking at 10%.  This section was also the strongest for the 45 DTE and 59 DTE trade variations.

80 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 Ratios were associated with loss taking at 25% and an IVR > 50%.  The best Sortinos at 80 DTE were lower than the best Sortinos at all other DTE except for 52 DTE.

80 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 at 35%, 45%, and NA, across loss taking levels.

80 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.

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

Which variation of the 80 DTE straddle is best?  That depends on your risk tolerance.  If I was going to trade a 80 DTE ATM SPX straddle on a monthly basis, I would gravitate towards the non-IVR filtered version that takes profits at 25% and losses around 100%.  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 35% and loss taking at 100%.  You can find links to all of my SPX straddle articles on the SPX Straddle Summary Page.

In the next one or two posts I will summarize the results of all of the SPX short straddle backtests.

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Dileo Burgin said...

when you are forced out of a trade, when do you reenter?

Dave R. said...

Hi Dileo,

For the backtests, a new trade is initiated at the next DTE window for the next month's option expiration. For example, say you are following a 66 DTE approach. You enter a 66 DTE Dec expiration. Regardless of whether this trade is still on, exited for a profit, or exit for a loss, your next entry is 66 DTE before the Jan expiration.


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