SPX Straddle - 66 DTE - Manage Profits at 10%

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 66 days-to-expiration (DTE).  In this second post of five on 66 DTE straddles, we look at trades that use the same loss exits as shown in the first post, and in addition, take profits at 10% 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 66 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 66 DTE and utilizing our loss exits and 10% credit exits (described here), resulted in the equity curves below.  These equity curves are not as smooth as the 59 DTE variations and actually look more similar to the 52 DTE variations.

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The trade metrics for these different exits are shown in the table below.  Six of the eight variations have win rates at 90% or greater.  The (175:10) variation had the highest P&L % / day reading, highest overall P&L % value, and a win rate of 91%.

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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 66 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.  There is a trend of increasing P&L with increasing IVR, but it is not very clear because the y-axis scale.  This is the same y-axis scale used in the first post of this 66 DTE straddle series.

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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 all trades occurred at lower IV, below 40.  The bulk of the losing trades occurred at an IV below 30, but many winning trades occurred in this region as well.  Also, the number of losing trades in this region decreases as the loss taking threshold is increased.

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The third image shows P&L in percentage terms versus days-in-trade (DIT).  When managing losses early (25%, 50%), the losses were fairly evenly distributed across DIT.  As the loss management becomes less aggressive (125%, 150%, 175%, and 200%), the loss thresholds were were rarely hit.  We still had losing trades, with losses realized at expiration...but these losses were mostly less than our threshold value at expiration.

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IV Rank > 50% Filter

In this section we 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 66 DTE and utilizing our loss exits and 10% credit exits (described here) resulted in the equity curves below...not great...better than the corresponding 52 DTE equity curves, and worse than the corresponding 59 DTE equity curves.

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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...only 23 out of 104.  The win rate was solid (at 83%) for six of the eight variations, but the total P&L % numbers were almost completely negative... mostly losers.

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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 66 DTE and utilizing our loss exits and 10% credit exits (described here) resulted in the equity curves below...which look significantly better than the IVR > 50% equity curves.  These variations really started working in 2010 or 2011, depending on the loss threshold.

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The trade metrics for these different exits are shown in the table below.  Using the lower IVR filter resulted in trade metrics that were better than the non-IVR filtered and IVR > 50% strategy variations.  The top performers were the (175:10) and (200:10) variations.  These two variations had higher P&L per day readings, higher P&L per trade values, and higher overall P&L, and higher win rates than the non-IVR filtered and IVR > 50% 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 we will look at the backtest results of 66 DTE ATM SPX short straddles using the same loss thresholds as above, but with profit taking occurring at 25% of the credit received.


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