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4 Comments

  1. Pratap Prabhu
    November 26, 2023 @ 12:37 pm

    Thanks. The comparison with long SPY and daily entry makes sense.
    But how does this compare with just opening the short put [1]? What’s the advantage of doing a strangle vs. just the put?

    [1]https://spintwig.com/spx-short-put-7-dte-s1-signal-options-backtest/

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    • spintwig.com
      November 27, 2023 @ 1:50 pm

      Good to see you again Pratap. Refresh the page (may need to also clear caches) and you’ll see the missing discussion section that compares each “side” of the strategy side by side.

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      • Pratap Prabhu
        November 27, 2023 @ 2:36 pm

        Thanks! Yes looks like one leg has higher max drawdown but the tradeoff in complexity, sharpe ratio isn’t worth it for me atleast

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  2. spintwig.com
    November 27, 2023 @ 2:12 pm

    We received a question about this post via the contact form but the reply email address provided was not valid. Thank you for reaching out; here are the answers to your questions:

    The 16-delta s1 = true short SPX strangle 7-DTE strat’s minimum starting capital under Reg-T margining is indeed 223k. This is calculated as NLV + premium received to open position – margin requirement for open positions (we use 20% of the notional value of the call side strike for short strangle positions). As you alluded, drawdowns, but more importantly the sequence of drawdowns, has an influence over the minimum starting capital required to complete the backtest.

    Something to keep in mind is that as strategies underperform the underlying, margin requirements grow faster than NLV. This applies downward pressure on the number of contracts one can open over time. In the discussion section we present a chart that displays margin utilization over time to help visualize this concept.

    The strategies presented use a max margin utilization target of 100%. This means that, on at least one occasion, the account was running at 5x leverage using Reg-T margining requirements. Said another way, the performance displayed assumes a 5x leverage target. Running lower leverage would result in a lower CAGR and shallower max drawdown for the same amount of starting capital.

    The “9” for max concurrent positions is a consequence of the entry-date tolerances. To help us achieve the target of opening a position each trading day (in order to mitigate timing [un]luck), we apply tolerances to DTE. Specifically for this backtest, we target 7 DTE +/- 4, closest to 7. We present the average trade duration to report on the effect of our tolerances. We can use tighter tolerances, or no tolerances at all, but we risk missing trades that could be material to PnL (eg: missing a large losing trade).

    Hope this helps!

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