SPX Straddle - 38 DTE - Results Summary

Over the last five blog posts we looked at the backtest results for 4160 options straddles sold on the S&P 500 Index (SPX) at 38 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 - 38 DTE - No Profit Management
• SPX Straddle - 38 DTE - Manage Profits at 10% of the Credit Received
• SPX Straddle - 38 DTE - Manage Profits at 25% of the Credit Received
• SPX Straddle - 38 DTE - Manage Profits at 35% of the Credit Received
• SPX Straddle - 38 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 IV 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 10%.

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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% and profit taking at 25%, 35%, and 45%.  Another area of strength was the IVR >25% and profit taking at 35%.

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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 win rates occur with an IVR < 25%, and profit taking at 10%....all variations have 96% win rates except for the (25:10) variation.

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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 Ratios were associated with the lowest profit taking percentage of 10%, at IVRs of < 25%.  It is also interesting to note that the loss taking at 25% has a number of IVR / profit taking percentages combinations that yield high Sortinos.

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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 occurred at IVRs < 25% and profit taking at 10%...regardless of the loss taking percentage.  Some of the highest profit factors occurred in regions with high Sortino values.

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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...fairly obvious results here.

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Which variation of the 38 DTE straddles is best?  That depends on your risk tolerance...there's no right answer.  If I was going to trade a 38 DTE ATM SPX straddle, I would gravitate towards the variation with the highest win rates...taking profits at 10%, with IVR < 25% and a loss threshold in the 50% to 75% range.  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 backtest results for the short straddle on the SPX at 45 DTE.


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SPX Straddle - 38 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 38 days-to-expiration (DTE).  In this fifth post of five on 38 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 more than 800 individual trades entered by the backtester.

Also, in case you missed it, my last post covered the results for profit taking at 35%:
SPX Straddle - 38 DTE - Manage Profits at 35%

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, I've highlighted some of the metrics rows 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 38 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 (IV) rank of the SPX on the date of entry.  Entering these trades at 38 DTE and utilizing our loss exits and 45% 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 (100:45) variation stood out with a solid P&L % / day reading, high overall P&L %, and a good win rate.

(click to enlarge)

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 38 DTE ATM SPX straddles. The first image contains one scatter plot per strategy and shows P&L in percentage terms versus IV rank for the SPX. The IV rank was captured on the day each trade was initiated.  At this level of profit taking it is difficult to distinguish the trend of increasing P&L with increasing IV rank.  This is primarily due tot he lower win rates with profit taking at 45%.

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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.  Again, the lower win rate at the 45% profit taking level makes it a little difficult to see the trend...there are nearly as many losing trades as winning trades.

(click to enlarge)

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 25 DIT.  At the higher loss management levels, 125% and greater, most of the losses were realized at expiration.

(click to enlarge)

IV Rank > 50% Filter

In this section we will look at the results of entering one trade for every monthly expiration only when the IV rank of the SPX is greater than 50% ( >50% ).  Entering these trades at 38 DTE and utilizing our loss exits and 45% 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 with the earlier articles, there are significantly fewer trades that meet the >50% IVR criteria.  The P&L% per day readings are much higher at the lower loss levels (25%, 50%, 75%).  We observed this pattern with the 10%, 25%, and 35% profit management also.  The win rate is 65% for all variations, except for the 25% loss management level.

(click to enlarge)

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

(click to enlarge)

IV Rank < 50% Filter

In this section we will look at the results of entering one trade for every monthly expiration only when the IV rank of the SPX is less than 50% ( <50% ).  Entering these trades at 38 DTE and utilizing our loss exits and 45% 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.  Using the lower IVR filter did not improve any of the metrics.

(click to enlarge)

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

(click to enlarge)

In the next post I will summarize the backtest results of 38 DTE ATM SPX short straddles, before moving on to the 45 DTE straddle series.


Follow my blog by email, RSS feed or Twitter (@DTRTrading).  All options are free, and are available on the top of the right hand navigation column under the headings "Subscribe To RSS Feed", "Follow By Email", and "Twitter".  I follow blogs by RSS using Feedly, but any RSS reader will work.


Feel free to use any of the images/information on my blog, but please reference this blog when sharing the information with others.

SPX Straddle - 38 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 38 days-to-expiration (DTE).  In this fourth post of five on 38 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 more than 800 individual trades entered by the 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, I've highlighted some of the metrics rows 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 38 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 (IV) rank of the SPX on the date of entry.  Entering these trades at 38 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 (100:35) and (125:35) variations stand out with solid P&L % / day readings, high overall P&L %, and good win rates.

(click to enlarge)

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 38 DTE ATM SPX straddles. The first image contains one scatter plot per strategy and shows P&L in percentage terms versus IV rank for the SPX. The IV rank was captured on the day each trade was initiated.  As we noticed in the prior articles, there is a clear trend of increasing P&L with increasing IV rank.

(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 and unprofitable trades occurred at lower IV...below 30.

(click to enlarge)

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 above 25 DIT.

(click to enlarge)

IV Rank > 50% Filter

In this section we will look at the results of entering one trade for every monthly expiration only when the IV rank of the SPX is greater than 50% ( >50% ).  Entering these trades at 38 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 with the earlier articles, there are significantly fewer trades that meet the >50% IVR criteria.  The P&L% per day readings are much higher at the lower loss levels (25%, 50%, 75%).  We observed this pattern with the 10% and 25% profit management also.  The win rate is 77% for all variations, except for the 25% loss management level.

(click to enlarge)

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

(click to enlarge)

IV Rank < 50% Filter

In this section we will look at the results of entering one trade for every monthly expiration only when the IV rank of the SPX is less than 50% ( <50% ).  Entering these trades at 38 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.  Using the lower IVR filter did not improve any of the metrics.

(click to enlarge)

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

(click to enlarge)

In the next post we will look at the backtest results of 38 DTE ATM SPX short straddles using the same loss thresholds as above, but with profit taking occurring at 45% of the credit received.


Follow my blog by email, RSS feed or Twitter (@DTRTrading).  All options are free, and are available on the top of the right hand navigation column under the headings "Subscribe To RSS Feed", "Follow By Email", and "Twitter".  I follow blogs by RSS using Feedly, but any RSS reader will work.


Feel free to use any of the images/information on my blog, but please reference this blog when sharing the information with others.