QQQ Short Put 7 DTE Leveraged Options Backtest

3 min read

In this post we’ll take a look at the backtest results of opening one QQQ short put 7 DTE leveraged position each trading day from April 1 2011 through Sept 30 2020 and see if there are any discernible trends. We’ll also explore the profitable strategies to see if any outperform buy-and-hold QQQ.

Backtest duration is limited due to the lack of CBOE data on QQQ prior to Mar 23 2011.

There are 10 backtests in this study evaluating over 23,300 QQQ short put 7 DTE leveraged trades.

Let’s dive in!

Summary

Systematically opening QQQ short put 7 DTE leveraged positions was profitable no matter which strategy was selected.

The 50D @ hold-till-expiration strategy outperformed buy-and-hold QQQ with regard to total return.

Methodology

Strategy Details

• Symbol: QQQ
• Strategy: Short Put
• Days Till Expiration: 7 DTE +/- 4, closest to 7
• Start Date 2011-04-01
• End Date 2020-09-30
• 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 expiration, 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

Results

Starting Capital

Typically, early management allows a smaller starting portfolio value for the since the maxim number of concurrent positions is capped. The idea is that less capital is “turned over” faster vs holding till expiration. However, that only happened with the 5D and 10D strategies. Holding till expiration was less capital intensive for the higher-delta strategies.

Margin Utilization

Early management yielded a lower average margin utilization vs 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 outperformed holding till expiration with regard to win rate.

The higher the delta, the lower the win rate.

Monthly Returns

Max Drawdown

Max Drawdown Duration

Average Trade Duration

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

Compound Annual Growth Rate

Annual Volatility

Sharpe Ratio

Profit Spent on Commission

20.81% – the average percent of profits spent on commission across profitable 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

QQQ tracks an index that has an allocation, at the time of writing, just shy of 50% in the information technology sector.

Let’s compare the risk-adjusted returns of a cash-secured implementation vs a leveraged (max margin target of 5x – this study) implementation:

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