GLD Short Put 45 DTE Leveraged Options Backtest

5 min read

In this post we’ll take a look at the backtest results of opening one GLD short put 45 DTE leveraged position each trading day from Jun 3 2008 through Nov 4 2019 and see if there are any discernible trends. We’ll also explore the profitable strategies to see if any outperform buy-and-hold GLD.

There are 10 backtests in this study evaluating over 28,566 GLD short put 45 DTE leveraged trades.

Let’s dive in!

Summary

Systematically opening 45 DTE leveraged short put positions on GLD was profitable no matter which strategy was selected.

The 16D @ hold-till-expiration both 30D and 50D strategies outperformed buy-and-hold with regard to total return.

Methodology

Strategy Details

• Symbol: GLD
• Strategy: Short Put
• Days Till Expiration: 45 DTE +/- 17, closest to 45
• Start Date: 2008-06-03
• End Date: 2019-11-04
• Positions opened per trade: 1
• Entry Days: daily
• Entry Signal: N/A
• 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
• Max Margin Utilization Target (short option strats only): 100% | 5x 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
• Margin requirement for short CALENDAR SPREAD positions is 20% of the short option (short option expires after the long option)
• Margin requirement for long CALENDAR SPREAD positions is the net cost of the spread (short option expires before the long option)
• Early assignment never occurs
• There is ample liquidity at all times

Mechanics

• Prices are in USD
• Prices are nominal (not adjusted for inflation)
• All statistics are pre-tax, where applicable
• Margin collateral is invested in 3mo US treasuries and earns interest daily
• Assignment P/L is calculated by closing the ITM position at 3:46pm ET the day of position exit if managed early or 4:00pm if held till expiration
• Commission to open, close early, or expire ITM is 1.00 USD per non-index underlying (eg: SPY, AAPL, etc.) contract
• Commission to open, close early, or expire ITM is 1.32 USD per index underlying (eg: SPX) contract
• Commission to expire worthless is 0.00 USD per contract (non-index and index)
• Commission to open or close non-option positions, if applicable, is 0.00 USD
• Slippage is calculated according to the slippage table
• Starting capital for short option backtests is adjusted in $1000 increments such that max margin utilization is between 80-100%, closest to 100%, of max margin utilization target
• Starting capital for long option backtests is adjusted in $1000 increments such that max drawdown is between 80-100%, closest to 100%, of max drawdown target
• For comprehensive details, visit the methodology page

Results

Starting Capital

Early management allows a smaller starting portfolio value since the maxim number of concurrent positions is capped. Less capital is “turned over” faster vs holding till expiration.

Margin Utilization

Early management yielded a lower average margin utilization across all strategies when compared to holding till expiration.

Hindsight bias was used to maximize Reg-T margin utilization for each strategy. This allows a “best case” scenario for the option strategy to outperform the benchmark.

Also displayed is the date in which each strategy experienced maximum margin utilization.

Premium Capture

Early management had lower rates of premium capture vs holding till expiration.

The higher the delta, the lower the premium capture.

Win Rate

Managing trades early underperformed holding till expiration with regard to win rate; 50D was an exception.

The higher the delta, the lower the win rate.

Annual Volatility

Monthly Returns

Max Drawdown

Drawdown Days

Average Trade Duration

Managing trades at 50% max profit or 21 DTE yielded trade durations less than half the duration of hold-till-expiration.

Compound Annual Growth Rate

Sharpe Ratio

Profit Spent on Commission

13.99% – the blended average percent of profits spent on commission across all option strategies.

Total P/L

Early management underperformed holding till expiration with regard to total P/L.

Higher delta strategies yielded greater total P/L than lower delta strategies.

Overall

All option strategies were profitable.

Discussion

Let’s take a look at the total and risk-adjusted returns from this strategy and compare them against a cash-secured implementation.

Unlike the trend among leveraged equity backtests performed to date, applying leverage to GLD doesn’t appear to create the same material widening of sharpe ratios across strategies.

However, what does seem to be consistent is that lower delta strategies get a boost in risk adjusted returns while higher delta strategies experience a loss in risk-adjusted returns.

Additional Resources

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