In this post we’ll take a look at the backtest results of opening one SLV short put 45 DTE cash-secured position each trading day from Dec 8 2008 through November 8 2019 and see if there are any discernible trends. We’ll also explore the profitable strategies to see if any outperform buy-and-hold SLV.
There are 10 backtests in this study evaluating over 26,500 SLV short put 45 DTE cash-secured trades.
Let’s dive in!
- Symbol SLV
- Strategy Short Put
- Start Date 2008-12-08
- End Date 2019-11-08
- Positions opened 1
- Entry Days every trading day in which entry criteria is satisfied
- 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 option positions and will interpret the results from the lens of income generation relative to buy-and-hold.
The utility or effectiveness of options as a hedging tool or other use will not be discussed and is out of scope.
Managing trades early lowered the win rate for all strategies.
Baring the 5D and 10D early management strategies which suffered from commission drag, 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 yielded trade durations less than half the duration of hold-till-expiration.
Compound Annual Growth Rate
Profit Spent on Commission
25.3% – the blended average percent of profits spent on commission across strategies with profits.
Higher-delta strategies yielded greater profits than lower delta strategies.
Holding till expiration yielded greater profits than managing early.
Most option strategies were profitable.
Early management hurt performance across the board. Yes, daily P/L is higher on some strategies as a result of the much shorter trade durations. However, that’s more than offset by every other metric. This is a scenario where the best approach historically has been to simply place a trade then walk away.
A notable observation is the sharp increase in SLV late 2010 / early 2011 and subsequent price collapse early-to-mid 2013. Short put options missed out on the steep gains yet also absorbed the losses quite well. With Sharpe ratios over 2.7x the buy-and-hold strategy, this is an underlying where leveraged strategies may outperform on both a total return and risk-adjusted basis.
Systematically opening cash-secured short put positions on SLV was profitable for all hold-till-expiration strategies and the 30D and 50D early-management strategies.
All of the cash-secured SLV hold-till-expiration short put strategies outperformed buy-and-hold SLV on a risk-adjusted return basis. However, none outperformed on a total return basis.
The 5D and 10D @ hold-till-expiration strategies had the greatest risk-adjusted return.
Thanks for reading 🙂
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