In this post we’ll take a look at the backtest results of opening one MU short put 45 DTE cash-secured position each trading day from Jan 3 2007 through December 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 MU.
There are 10 backtests in this study evaluating over 26,900 MU short put 45 DTE cash-secured trades.
Let’s dive in!
Systematically opening cash-secured short put positions on MU was profitable for 6 of the 10 option strategies.
All cash-secured MU short put strategies underperformed buy-and-hold MU with regard to total return.
- Symbol: MU
- Strategy: Short Put
- Days Till Expiration: 45 DTE +/- 17, closest to 17
- Start Date: 2007-01-03
- End Date: 2019-12-27
- Positions opened per day: 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
- 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)
- 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
Managing trades early underperformed holding till expiration with regard to win rate.
The higher the delta, 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 yielded trade durations less than half the duration of hold-till-expiration.
Compound Annual Growth Rate
Profit Spent on Commission
8.80% – the blended average profit spent on commission across all profitable option strategies.
Early management underperformed holding till expiration with regard to total return.
Higher delta strategies yielded greater total return than lower delta strategies; 10D @ 50% max profit or 21 DTE was an exception.
Six of the 10 option strategies were profitable.
The 10D @ 50% max profit or 21 DTE strategy appeared on more than one occasion as an outlier in a negative context. Historically, underperformance generally correlated with the 5D strategies. What’s different here?
Let’s take a look at the number of occurrences associated with each strategy to get a better understanding.
Discussed in the methodology section above, there are tolerances associated with each strategy. For example, the 10D strategy in this study targets strikes closest to 10D with a +/- 5 delta tolerance. 5D is +/- 4.5 delta.
It turns out there were simply more trading days in which strikes aligned with 10D than any other strategy. Since the general profitability of early-managed 10D trades was negative, having 114-120 more occurrences of a negative return caused an early-managed 10D strategy to underperform the early-managed 5D and 16D strategies.
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