SPX Straddle - 80 DTE - No Profit Management

This post looks at the results of selling a one-lot straddle on the S&P 500 Index (SPX), initiated at 80 days-to-expiration (DTE).  This is the first post of five on 80 DTE straddles, and will only look at loss exits...the other four posts will explore different profit exits on top of the loss exits in this post.  The results displayed in this post represent data from 808 individual trades entered by the automated backtester.

For background on the setup for the automated 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 (described here) resulted in the equity curves below.  These equity curves do not look as good as the prior 73 DTE curves.

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The trade metrics for these different exits are shown in the table below.  The win rates are not great, with the best numbers coming in at 62%.  The win rates are similar to the corresponding 66 DTE variations.  The total P&L % numbers are also not as good as the corresponding 66 DTE and 73 DTE variations.  As a reminder, these trades are either exited at expiration OR at the designated loss level.

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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 two images 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.  The profitable trades follow a trajectory that curves up slightly as IVR increases.  Also, since no profit target was used, the returns are fairly evenly distributed across IVR levels.

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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.  We see the familiar cluster of trades in the region between 10 and 30 IV.

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Even without profit management or an IVR filter, approximately 60% of the trades were profitable at a loss management level of 75% or greater.  The trend of increasing IV yielding higher returns is barely perceptible in these scatter plots.


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 (described here) resulted in the equity curves below.  As we've seen in my prior posts, the curves have long periods that are flat...these are times when no trades were taken due to the IVR being below the filter level.  This is a familiar pattern that we have seen with all of the trades using the IVR > 50% filter.

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The trade metrics for these different exits are shown in the table below.  These trades have better win rates, significantly better returns per day, and better returns per trade than the non-IVR filtered trades.   These latter two metrics were about three times higher.  The total P&L% for these filtered trades was a bit more than half the total P&L% for the non-IVR filtered.  Also note, that only a little less than 20% of the total trades satisfied the IVR filter of  > 50%.

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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 (described here) resulted in the equity curves below.  2015 continues to have a huge positive impact on these trade variations.

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The trade metrics for these different exits are shown in the table below.  These trades have lower win rates and lower total P&L per day and P&L per trade numbers than the non-IVR and IVR > 50% filtered trades shown above.

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The table below shows the distribution of returns in five-number summary format.

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The 80 DTE SPX short straddles without profit management did not perform as well as some of the other DTE variations.  We now have our baseline for the 80 DTE strategies, so we can move on to the profit taking versions.

In the next post we will look at the automated backtest results of 80 DTE SPX short straddles using the same loss thresholds as above, but with profit taking occurring at 10% of the credit received.


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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:

• Option Straddle Series - P&L Exits
• SPX Straddle - 73 DTE - No Profit Management
• SPX Straddle - 73 DTE - Manage Profits at 10% of the Credit Received
• SPX Straddle - 73 DTE - Manage Profits at 25% of the Credit Received
• SPX Straddle - 73 DTE - Manage Profits at 35% of the Credit Received
• SPX Straddle - 73 DTE - Manage Profits at 45% of the Credit Received

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.

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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.

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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.

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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.

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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%.

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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.

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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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SPX Straddle - 73 DTE - Manage Profits at 45%

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 73 days-to-expiration (DTE).  In this fifth post of five on 73 DTE straddles, we look at trades that use the same loss exits as shown in the first post, and in addition, take profits at 45% of the credit received.  The results displayed in this post represent data from 832 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 73 DTE equity curves.

No IV Rank Filter

In this section we 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 73 DTE and utilizing our loss exits and 45% credit exits (described here), resulted in the equity curves below.  Loss management at 25% and 50% clearly hurt the returns for these particular variations.

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The trade metrics for these different exits are shown in the table below.  The (125:45) variation stood out with the best P&L % / day reading, the highest P&L % per trade reading, the highest total P&L % value, and the highest win rate (of 74%).  Three other variations also had win rates of 74%.  These are some of the best metrics that we've seen across DTE, for profit management at 45%, and not utilizing IVR filtering.

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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 73 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.  The trend of increasing P&L with increasing IVR is very clear.

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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).  In order to extract 45% of the credit, the trade duration needs to be longer...this is clearly evident with the clustering of profitable trades above 40 DIT.  At the higher loss management levels, 125% and greater, most of the losses were realized at expiration.  This is the same pattern we noticed with the other variations using the 45% profit management level.

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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 73 DTE and utilizing our loss exits and 45% credit exits (described here) resulted in the equity curves below.  These are the best returns for the 45% credit exit for all of the DTE tested up to this point.

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The trade metrics for these different exits are shown in the table below.  As we've seen with the earlier articles, there are significantly fewer trades that meet the >50% IVR criteria...24 out of 104 possible trades.  The top variations (highlighted in yellow) had higher P&L% per day readings, higher P&L% per trade values, better win rates and larger profit factors than the non-IVR filtered variations.  The best performer of the group was the (75:45) variation.  Six of the eight variations had win rates of 83%.

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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 73 DTE and utilizing our loss exits and 45% credit exits (described here) resulted in the equity curves below.  These filtered trades have had a very good run all since late 2011.

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The trade metrics for these different exits are shown in the table below.  Using the lower IVR filter did not improve any of the metrics.  The best performer of the group was a tie between the (125:45) and (150:45) 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 I'll summarize the automated backtest results of the 73 DTE ATM SPX short straddles, before moving on to the 73 DTE straddle series.


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SPX Straddle - 73 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 73 days-to-expiration (DTE).  In this fourth post of five on 73 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 832 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 73 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 73 DTE and utilizing our loss exits and 35% credit exits (described here), resulted in the equity curves below.  You can see that the aggressive risk management at 25% and 50% under performed the other loss taking approaches.

(click to enlarge)

The trade metrics for these different exits are shown in the table below.  The (125:35) 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 79%).  Four of the variations had win rates of 79%.  These are the highest win rates for all of the DTE that we've looked at, where profits were manged at 35% and no IVR filtering was performed.

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The table below shows the distribution of returns in five-number summary format.  Hat-tip to tastytrade.

(click to enlarge)

Below are three sets of scatter plots for selling 73 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 (125% 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 many of these particular losses were less than our loss threshold values.  In order to collect 35% of the credit, you need to stay in these trades longer...about 30 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 73 DTE and utilizing our loss exits and 35% credit exits (described here) resulted in the equity curves below.

(click to enlarge)

The trade metrics for these different exits are shown in the table below.  As we've seen in the earlier articles, only about 23% of the trades meet the >50% IVR criteria.  The best variation of the group was the (75:35) straddle.  The win rate was 83% for six of the eight variations...three losing trades out of 24.  Also, these are some of the highest total returns that we've seen across all DTE, where profits were managed at 35% and the 50% IVR filter was used.

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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 73 DTE and utilizing our loss exits and 35% credit exits (described here) resulted in the equity curves below.

(click to enlarge)

The trade metrics for these different exits are shown in the table below.  The metrics for these IVR filtered variations were worse than the unfiltered variations, but the total returns were greater than the variations utilizing the 50% IVR filter.  The top performing strategy was the (75:35).

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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 73 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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SPX Straddle - 73 DTE - Manage Profits at 25%

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 73 days-to-expiration (DTE).  In this third post of five on 73 DTE straddles, we look at trades that use the same loss exits as shown in the first post, and in addition, take profits at 25% of the credit received.  The results displayed in this post represent data from 832 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 73 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 73 DTE and utilizing our loss exits and 25% credit exits (described here), resulted in the equity curves below...not as good as the 59 DTE variations,...similar to the 66 DTE variations.

(click to enlarge)

The trade metrics for these different exits are shown in the table below.  Again, the (75:25) variation stands out with the top P&L % per day reading, highest overall P&L % value, highest P&L % per trade, and a solid win rate of 82%.  The second best variation was the (125:25) strategy.  These numbers are are similar to the 59 DTE variations.

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The table below shows the distribution of returns in five-number summary format.  Hat-tip to Tastytrade.

(click to enlarge)

Below are three sets of scatter plots for selling 73 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.  The trend of increasing P&L with increasing IVR continues and is clearly visible in the scatter plots.

(click to enlarge)

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 trades occurred at an IV below 40.  The majority of the winning and losing trades occurred below an IV of 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 before...when managing losses early (25%, 50%), the losses were fairly evenly distributed across DIT.  As the loss management becomes less aggressive (125% and higher), we see that most of the losses were not realized until expiration...meaning many of these particular losses were less than our threshold values.  Also, for this particular DTE and profit management level, profitable trades generally occurred anywhere from 20 to 70 days...a huge range with no clear clustering.

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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 73 DTE and utilizing our loss exits and 25% credit exits (described here) resulted in the equity curves below.  These curves are have the best returns of the filtered, 25% credit exit variations across DTE, but these curve shapes to not appear as good as the 59 DTE variations.

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The trade metrics for these different exits are shown in the table below.  There are significantly fewer trades that meet the >50% IVR criteria...a bit more than 23% of the available trades...this is a consistent trend with the > 50% IVR filter.  Using this IVR filter, causes six of the eight strategy variations to have win rates of 92%.  The (75:25) variation was again the best out of the eight strategies.

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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 73 DTE and utilizing our loss exits and 25% credit exits (described here) resulted in the equity curves below.

(click to enlarge)

The trade metrics for these different exits are shown in the table below.  The metrics for the variations associated with this lower IVR filter were not as good as either the non-IVR filtered strategies or the IVR > 50% strategies.

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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 73 DTE ATM SPX short straddles using the same loss thresholds as above, but with profit taking occurring at 35% of the credit received.


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