June 19, 2020

AAPL Short Put 0 DTE Cash-Secured Options Backtest

spintwig.com Options 0 DTE, AAPL, backtest, Cash Secured, Early Management, Hold Till Expiration, Short Put 0

3 min read

In this post we’ll take a look at the backtest results of opening one AAPL short put 0 DTE cash-secured position each trading day from Jan 3 2007 through Dec 27 2019 and see if there are any discernible trends. We’ll also explore the profitable strategies to see if any outperform buy-and-hold AAPL.

There are 10 backtests in this study evaluating over 12,900 AAPL short put 0 DTE cash-secured trades.

Let’s dive in!

Summary

Systematically opening ultra-short-duration short put positions on AAPL was profitable most of the time.

All AAPL short put strategies underperformed buy-and-hold AAPL with regard to total return.

Methodology

Strategy Details

Symbol: AAPL
Strategy: Short Put
Days Till Expiration: 0 DTE +/- 3, closest to 0
Start Date: 2007-01-03
End Date: 2019-12-27
Positions opened 1
Entry Days every trading day
Timing 3:46 ET
Strike Selection
- 5 delta +/- 4.5 delta, closest to 5
- 10 delta +/- 5 delta, closest to 10
- 16 delta +/- 6 delta, closest to 16
- 30 delta +/- 8 delta, closest to 30
- 50 delta +/- 8 delta, closest to 50
Trade Entry
- 5D short put
- 10D short put
- 16D short put
- 30D short put
- 50D short put
Trade Exit
- 50% max profit or expiration, whichever occurs first
- Hold till expiration
Max Margin Utilization Target (short option strats only): 20% | 1x leverage
Max Drawdown Target: 99% | account value shall not go negative

Assumptions

Margin requirements are always satisfied
Margin calls never occur
Margin requirement for short CALL and PUT positions is 20% of notional
Margin requirement for short STRADDLE and STRANGLE positions is 20% of the larger strike
Margin requirement for short VERTICAL SPREAD positions is the difference between the strikes
Early assignment never occurs

Mechanics

Prices are in USD
Prices are nominal (not adjusted for inflation)
All statistics are pre-tax, where applicable
Margin collateral is held as cash and earns no interest
Assignment P/L is calculated by closing the ITM position at 3:46pm ET the day of expiration / position exit
Commission to open, close early, or expire ITM is 1.00 USD per contract
Commission to expire worthless is 0.00 USD per contract
Commission to open or close non-option positions, if applicable, is 0.00 USD
Slippage is calculated according to the slippage table
For comprehensive details, visit the methodology page

Results

Win Rate

Managing trades early outperformed holding till expiration with regard to win rate. 5D is an exception due to commission drag.

The higher the delta the lower the win rate.

Annual Volatility

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Worst Monthly Return

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Average P/L Per Day

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Average Trade Duration

Managing trades at 50% max profit improved the efficiency of capital and shortened the average trade duration.

Time in Market

Not depicted in the chart and table above, the majority of the time spent out of the market was between January 3 2007 through June 3 2010. June 4 2010 is when weekly options on AAPL were introduced.

Compound Annual Growth Rate

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Sharpe Ratio

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Profit Spent on Commission

20.84% – the blended average percent of profits spent on commission across all profitable short put strategies.

Total P/L

AAPL Short Put 0 DTE CS total profit and loss

Early management underperformed holding till expiration with regard to total P/L. 50D was an exception.

There were no clear relationships between delta and total P/L.

Overall

All cash-secured short put strategies were dwarfed by the strong performance of buy/hold AAPL.

Discussion

The combination of order-entry mechanics and available CBOE options products (monthlies until June 3 2010 then weeklies from June 4 2010 onward) caused the strategy to experience:

~57% of time in the market
material amounts of timing luck

As highlighted in the methodology section, the “ultra short” 0 DTE strategy calls for options with 0-3 DTE horizons. 0 DTE would equate to a position opened and expiring same day whereas a 3 DTE position would equate to a position opened on Friday and closed on a Monday (Fri = 0 DTE, Sat = 1, Sun = 2, Mon = 3).

AAPL, unlike SPY, does not have Monday-expiring or Wednesday-expiring options. Therefore, positions are opened Tues (3 DTE), Wed (2 DTE), Thurs (1 DTE) and Fri (0 DTE) so long as a delta exists in the respective range.

As luck would have it – timing luck is becoming a theme – most of AAPL’s gains over this period occurred between Friday morning and Monday morning, precisely when the option strategy didn’t have market exposure.