In this post we’ll take a look at the backtest results of opening one AMZN short put 45 DTE cash-secured position each trading day from January 3 2007 through August 30 2019 and see if there are any discernible trends. We’ll also explore the profitable strategies to see if any outperform buy-and-hold AMZN.
There are 10 backtests in this study evaluating over 31,400 AMZN short put 45 DTE cash-secured trades.
New – we explore the results of leveraging one of the AMZN cash-secured backtests using the Options Backtest Builder.
Let’s dive in!
- Symbol AMZN
- Strategy Short Put
- Start Date 2007-01-03
- End Date 2019-08-30
- Positions opened 1
- Entry Days every trading day
- Timing 3:46pm 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 21 DTE, whichever occurs first
- Hold till expiration
- 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
- Prices are in USD
- Prices are nominal (not adjusted for inflation)
- 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
This study seeks to measure the performance of opening short put positions and will interpret the results from the lens of income generation relative to buy-and-hold AMZN.
The utility of the short put strategy as a portfolio hedging tool or other use will not be discussed and is out of scope.
Managing trades early lowered the win rate for all strategies except 50D.
The riskier the trade the lower the win rate.
Worst Monthly Return
Average P/L Per Day
Average Trade Duration
Managing trades at 50% max profit or 21 DTE improved the efficiency of capital.
Higher-delta positions took longer to reach profit targets than lower-delta positions.
Compound Annual Growth Rate
Profit Spent on Commission
5.89% – the blended average percent of profits spent on commission across all short put strategies.
Higher delta strategies yielded more profit than lower delta strategies.
Holding till expiration yielded greater profits when managing early except for the 5D and 50D strategies.
All short put strategies were profitable yet were dwarfed by the strong performance of AMZN.
AMZN is one of the largest companies, as measured by market cap, in the S&P 500. It’s no surprise the strong performance of AMZN left the 45 DTE option strategies in the dust.
Early management mechanics allows us to “cycle” capital faster than a hold-till-expiration approach, similar to the AAPL Short Put 45 DTE study. By implementing shorter-dated strategies, such as 2-DTE options, it may be possible to capture more of the upside despite the additional gamma and whipsaw risks inherent with short-duration trades.
Let’s take a look at a leveraged implementation of the 10D @ 50% or 21 DTE strategy and compare it against a married stock strategy – opening and closing a lot of 100 shares of underlying per contract – and simple buy/hold total return.
Details on the methodology for leveraged strategies can be found by downloading the free Options Backtest Builder used to generate the following calculations and screenshots.
There is trend of margin utilization increasing over time as depicted by the dotted purple and blue lines. This pattern indicates the option strategy is underperforming a directionally-equivalent buy/hold position in the underlying. The option strategy is becoming progressively more expensive to implement as the price of the underlying increases. The premium collected is not growing the portfolio enough to offset the increasing contract value.
In order for this strategy to be successful, defined as being able to execute the strategy while remaining Reg-T compliant and not having the account go negative, we would need about $300k of starting capital.
We see the max leverage on a married strategy far exceeds what Reg-T or portfolio margin would allow, indicating 1) the starting capital is too little to implement a married stock strategy and consequently 2) the results in the middle column can be disregarded as being not achievable in practice. The data suggests a portfolio margin account, defined as allowing up to 6x leverage, would require about $550k of starting capital to successfully implement.
Returning our focus back to the option strategy, premium capture approaches 28% while commissions consume a mere 2% of total income. Not bad.
The Sharpe ratio went from 1.21 in the cash-secured implementation to 0.76 when leveraged – a measurable efficiency loss. Meanwhile, CAGR increased from 3.75% to 5.36%, a 43% improvement.
Systematically opening short put positions on AMZN was profitable no matter which strategy was selected.
All AMZN short put strategies underperformed buy-and-hold AMZN on a total return basis. However, some strategies outperformed on risk-adjusted basis.
The 5D @ hold-till-expiration had the greatest risk-adjusted return among the option strategies.
Thanks for reading 🙂
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