SPX Straddle - 80 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 80 days-to-expiration (DTE).  In this second post of five on 80 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 808 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 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 and 10% credit exits (described here), resulted in the equity curves below.  Many of these equity curves experienced a sharp drop during the 2008 financial crisis, especially the less aggressive loss management variations.  On the other hand, these less aggressive loss management strategies have had very minor drawdowns since 2008.

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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 (50:10) variation seems to be the best in the group.  It had the second highest P&L % / day reading, highest P&L / trade reading, highest overall P&L % value, and a win rate of 89%.  There were other variations that had better individual metrics, but the (50:10) seems to have the best mix.  Also, in terms of win rate, the (50:10) had 11 losing trades compared to the best variations with only 9 losing trades.

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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 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.  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 80 DTE short 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.  At loss management levels of 100% and greater, the number of losing trades remained constant at 9.

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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...we've seen this pattern with every DIT scatter plot.  As the loss management becomes less aggressive (75%, 100%, 125%, 150%, 175%, and 200%), the loss thresholds were hit in less than 5% of the trades.  There were still additional losing trades, but these losses were realized at expiration.  Also, 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 80 DTE and utilizing our loss exits and 10% credit exits (described here) resulted in the equity curves below...not great...better than some, and worse than others.  In general, this IVR filter does not work well with profit taking at 10% across DTE and loss management levels.

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The trade metrics for these different exits are shown in the table below.  As weve' seen, there are significantly fewer trades that meet the >50% IVR criteria...in this case only 19 out of 101.  The win rate was very good (at 95%) for five of the eight variations, but the total P&L % numbers were low.

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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 and 10% credit exits (described here) resulted in the equity curves below...which look significantly better than the IVR > 50% equity curves.  They have the same drawdown percentage, but higher total returns.

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The trade metrics for these different exits are shown in the table below.  The top performer was the (50:10) variation, even though it had the second lowest win rate of the group.  This variation had the second highest P&L per day reading, the highest P&L per trade value, and the largest overall P&L.  Six of the eight variations had win rates of 90%.

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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 80 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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