SPX Straddle - 45 DTE - Results Summary

Over the last five blog posts we looked at the backtest results for 4080 options straddles sold on the S&P 500 Index (SPX) at 45 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 - 45 DTE - No Profit Management
• SPX Straddle - 45 DTE - Manage Profits at 10% of the Credit Received
• SPX Straddle - 45 DTE - Manage Profits at 25% of the Credit Received
• SPX Straddle - 45 DTE - Manage Profits at 35% of the Credit Received
• SPX Straddle - 45 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 columns associated with profit taking at 25% and 35%.  The other area of strength was the IVR > 25% and profit taking at 35%.

(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% and profit taking at 25%, 35%, and no profit management (NA).  Another area of strength was the IVR >25% and profit taking at 35%.

(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 occur with an IVR > 50% and profit taking at 10%.  The most consistently high win rates are associated with an IVR < 25%, and profit taking at 10%.  At this level, six of the eight variations have win rates of 92%.

(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 an IVR > 50%, profit taking at 10%, 25%, and 35%,  and high loss taking percentages (125% through 200%).

(click to enlarge)

The fifth table shows the profit factor by IVR, profit taking percentage, and loss taking percentage.  The largest profit factor values occurred in the same area containing high Sortino values.  This highest Sortinos were associated with an IVR > 50%, profit taking at 10%, 25%, and 35%,  and high loss taking percentages (125% through 200%).

(click to enlarge)

The last table shows the average days-in-trade (DIT) by IVR, profit taking percentage, and loss taking percentage.  What does this show...the quicker the profit taking, the shorter the time spent in a trade...obvious results here.  Limiting your losses to 25% of the credit received also took you out of the trades sooner.

(click to enlarge)

Which variation of the 45 DTE straddles is best?  As I've mentioned before, that depends on your risk tolerance.  If I was going to trade a 45 DTE ATM SPX straddle, I would gravitate towards the variation highlighted by Tastytrade...taking profits at 25% and taking losses at 125%.  Based on the data, I'm not sure I would apply the IVR > 50% filter though...causes you to miss out on too many profitable trades.  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 52 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".