Wednesday, December 9, 2015

RUT Straddle - 52 DTE - Results Summary

This is the third article in a series looking at the backtest results of selling at-the-money (ATM) options straddles on the Russell 2000 index (RUT).  For background on the setup for the backtests, as well as the nomenclature used in the tables below, please see the introductory article for this series: Option Straddle Series - P&L Exits

This post reviews the backtest results for 4120 options straddles sold on the RUT at 52 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.  In future articles, the performance of trades initiated at other DTE (59, 66, 73, and 80) will be explored.  You can find the prior RUT straddle summary posts at the links below:

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 IV 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. This set of 52 DTE tests was unusual, in that the IVR > 50% level did not outperform the other IVR levels.  The highest daily returns were concentrated in the 45% profit taking levels with IVR < 50%, IVR > 25%, and NA (non-IVR filtered).  There were two strong IVR > 50% variations...(25:10) and (50:10).

52 DTE RUT 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 45% profit taking levels stood out again.  In addition, there was an area of strength with an IVR > 50% and profit taking at NA...trades carried to expiration.

52 DTE RUT 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.  The highest win rates occur with profit taking at 10%....with this profit taking level, the win percentages were nearly identical across IVR filter levels.

52 DTE RUT 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.  I think it's interesting how the trades initiated at high IVR levels under-performed in terms of Sortino.  The IVR > 50% level had the lowest Sortino numbers followed by the IVR > 25% level

52 DTE RUT 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 variations with the lowest Sortino Ratio numbers were also the variations with the lowest profit factor readings.  We've seen this trend in past tests as well...the areas with strong Sortinos are typically the areas with strong profit factors...and vice versa.

52 DTE RUT 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.  Quicker profit taking, translates into shorter time in the trade.

52 DTE RUT Short Straddle Summary Days In Trade
(click to enlarge)

Which variation of the 52 DTE RUT straddle is best?  Truthfully, I'm not a big fan of any of these variations based on the test results in this post.  Also, the patterns that we noticed in the past straddle tests on the RUT and SPX did not repeat in these results.  This was unusual.

If I had to sell a 52 DTE ATM RUT straddle every month, I would likely go with the non-IVR filtered variation ... taking profits at 25%, with a loss threshold of 75%.  This would put my gains at 33% of my losses (25/75), and a win rate at approximately 83%.

You can find links to all of my RUT straddle articles, and RUT straddle tweets on the RUT Straddle Summary Page.  In the next post, we will look at the automated backtest results for the short straddle on the RUT at 59 DTE.

Follow my blog by email, RSS feed or Twitter (@DTRTrading).  All options are available on the top of the right hand navigation column under the headings "Subscribe To RSS Feed", "Follow By Email", and "Twitter"

No comments:

Post a Comment