**here**) was very popular, so I thought I'd write a similar post on SPX straddles. Recall that from September, 2015 through November, 2015 I reviewed the backtest results form 28,840 short options straddles on the S&P 500 Index (

**SPX**). You can read the summary articles from that SPX series

**here**and

**here**, and the introductory article for the straddle series

**here**.

In this post, I am going to show the P&L results for the SPX straddle in line-chart form similar to the last article. The data in the charts below is only for the non-IVR filtered trades. The first set of charts shows the P&L Per Day amounts, with each chart representing the results for trades started at the same days-to-expiration (DTE). Here are a few key points for each chart:

- Each colored line in a chart represents a particular profit taking percentage level in terms of the credit received
- The X-axis displays the loss taking percentage level in terms of the credit received
- The Y-axis displays the average
*normalized*percent P&L per day - The Y-axis scale is the same for all the P&L per day charts in this article

It's important to note that these returns are the average

*normalized*returns per day. This is important when comparing options strategies for the following reasons:

- Each
in each of the seven P&L per day charts had different average trade durations. One data point may have had an average of 15 days-in-trade (DIT), while another may have had an average of 60 DIT. With most of these strategy variations, there were approximately 100 trades entered for each data point in the charts below. 100 times 15 is 1500 total DIT for a strategy, while 100 times 60 yields a total of 6000 DIT. The number of DIT obviously impacts the average P&L__data point__.__per day__ - When a straddle is entered at 38 DTE its initial portfolio margin (PM) requirement is going to be greater than say a straddle entered at 80 DTE. The difference in margin requirement can be nearly 20% greater in this example. This initial PM number must be taken into account in order to fairly compare P&L per day values...and has been in the charts below. Using dollar amounts instead of average normalized P&L per day would not necessarily take into account the different margin requirements for the different DTE variations.

Now, on to the charts...

__38 DTE__(click to enlarge) |

__45 DTE__(click to enlarge) |

__52 DTE__(click to enlarge) |

__59 DTE__(click to enlarge) |

__66 DTE__(click to enlarge) |

__73 DTE__(click to enlarge) |

__80 DTE__(click to enlarge) |

----

The next set of charts contains the average

*normalized*P&L

*for the seven different DTE reviewed in my SPX straddle backtest series. The different initial PM requirements were used when calculating the P&L per trade numbers similar to how the PM was used in calculating the P&L per day numbers. Also, as above, the next seven charts use the same Y-axis scale.*

__per trade__

__38 DTE__(click to enlarge) |

__45 DTE__(click to enlarge) |

__52 DTE__(click to enlarge) |

__59 DTE__(click to enlarge) |

__66 DTE__(click to enlarge) |

__73 DTE__(click to enlarge) |

__80 DTE__(click to enlarge) |

For most of the charts, the 10% profit taking level and the 25% loss taking level almost always yielded a return of approximately 5% on the PM requirement...and the PM requirement becomes smaller as we move out in DTE. We noticed this same pattern with the RUT straddles. Additionally, at 73 DTE and 80 DTE the 10% profit taking level and 25% loss taking level yielded returns of approximately 10% per trade.

As we noted for the RUT straddles, 5% at 38 DTE is going to be a greater dollar amount than 5% at 80 DTE. I continue to think that the data around the 10% profit taking level is very interesting.

When we consider profit taking targets we need to consider how these targets impact DIT. Here are a few approximations that seem to hold with both the SPX and RUT straddles:

- The 10% profit taking level will have your DIT at approximately 30% of DTE
- The 25% profit taking level will have your DIT at approximately 60% of DTE
- The 35% profit taking level will have your DIT at approximately 70% of DTE
- The 45% profit taking level will have your DIT at approximately 80% of DTE

Don't forget, that as the profit taking level is increased, the win rate drops. See my

**SPX Straddle Summary Page**for links to all of the articles in the series. Lastly, over the next several days I will tweet (

**@DTRTrading**) win rate line-charts and DIT line-charts, similar to those above.

*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"*

*.*

## 4 comments:

Always appreciated! I've been selling straddles & strangles on index products almost exclusively over the last few months. Still trading them discretionary but your work has provided confidence and a decent framework to think about these. Simplifying my trading strategy has made life so much better.

You should put up a donation box so I can buy you a beer.

great work Dave

did you measure the P/L based on initial PM margin on entry

or on dynamic PM margin (day to day basis)?

Albert

Brad - thank you for the feedback...much appreciated! Glad to hear that my research is helping you.

Albert - P/L is based on initial PM margin at entry...I don't have the formula to calculate the TD/TOS PM during the life fo the trade.

I just wanted to say thanks for all the hard work you put into this and making available to everyone. It has helped my trading.

It was very kind of you to share.

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