SPY Short Put 0 DTE Cash-Secured Options Backtest
In this post we’ll take a look at the backtest results of opening SPY short put 0 DTE cash-secured positions from January 3 2007 through September 26 2019 and see if there are any discernible trends. We’ll also explore the profitable strategies to see if any outperform buy-and-hold SPY.
There are 10 backtests in this study evaluating over 11,500 SPY short put 0 DTE cash-secured trades.
Let’s dive in!
Contents
Summary
Systematically opening short put 0 DTE positions on SPY was profitable no matter which strategy was selected.
Non of the cash-secured SPY short put 0 DTE strategies outperformed SPY with regard to total return.
Methodology
Strategy Details
- Symbol: SPY
- Strategy: Short Put
- Days Till Expiration: 0 DTE +/- 3, closest to 0
- Start Date: 2007-01-03
- End Date: 2019-09-26
- 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): 20% | 1x 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
- Early assignment never occurs
Mechanics
- 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
Results
Win Rate
Managing trades early improved the win rate.
The higher the delta the lower the win rate.
Annual Volatility
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Worst Monthly Return
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Average P/L Per Day
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Average Trade Duration
In all but the 5D scenario, ample opportunities existed – even while targeting 0 DTE – to implement early management mechanics.
Compound Annual Growth Rate
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Time in Market
The order entry mechanics allowed us to experience market exposure for about two thirds of the backtest duration. Due to the nature of 0 DTE options, 50D positions are less prevalent and therefore the 50D strategies experience less market exposure.
Not depicted in the chart and table above, the majority of the time spent out of the market was between January 3 2007 through June 4 2010. June 4 2010 is when weekly options on SPY were introduced.
Sharpe Ratio
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Profit Spent on Commission
7.2% – the blended average percent of profits spent on commission across all short put strategies.
Total P/L
Early management outperformed holding till expiration with regard to total return.
The higher the delta the greater the total return.
Overall
All short put 0 DTE strategies were profitable.
Discussion
The combination of order-entry mechanics and available CBOE options products (monthlies until June 3 2010 then weeklies from June 4 2010 onward) caused the strategy to experience:
- ~67% of time in the market
- material amounts of timing luck (notice how the strategy glossed right over 2007-2009)
As highlighted in the methodology section, the “ultra short” 0 DTE strategy calls for options with 0-3 DTE horizons. 0 DTE would equate to a position opened and expiring same day whereas a 3 DTE position would equate to a position opened on Friday and closed on a Monday (Fri = 0 DTE, Sat = 1, Sun = 2, Mon = 3).
Prior to June 4 2010, only monthly options existed on SPY. Thus, the backtest was participating in the market for only ~2 days each month from Jan 2007 through June 4 2010. The backtest skipped right over the losses associated with the global financial crisis.
Additional Resources
Private, Custom Backtests
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Trade Logs
Visit the trade log store to download the data used in this and other backtests.
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mREIT Dashboard
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SPY short put 0 DTE Bundle$99.00
October 25, 2019 @ 12:07 pm
Great! Thanks for the fantastic research you do. I have yet to find similar website with such good info, back-tests, logical explanations etc..
October 29, 2019 @ 2:05 pm
Thanks Tomaz!
November 12, 2019 @ 1:26 pm
What is 0 DTE?
SPY short put 0 DTE? it need to have at lest 1 day (1 DTE) to sell it…
also what do you do, when it finish in the money? (you close with a loss?)
thanks!
November 13, 2019 @ 4:30 pm
0 DTE positions are same-day expiration. For example, opening a position Wednesday morning or afternoon with a Wednesday expiration.
ITM positions that are held till expiration are “bought back” at the closing price (this methodology is the same whether the study is 0 DTE or 45 DTE). Trade P/L and Win/Loss status is calculated after factoring in initial premium received and commission costs.
April 11, 2020 @ 9:11 pm
If 10D is the greatest risk/return…then why do you recommend 5D in your Trading Options Efficiently posts?
Thanks so much for your posts, they’re amazing! Best I’ve found on the inter web.
April 12, 2020 @ 9:50 am
That’s because this is a completely different trade than what’s used in the Trading Options Efficiently mini series.
The mini series focuses on a 45 DTE trade. This is on a 0 DTE trade that also experiences materially more timing luck due to the non-100% time-in-market exposure.
You’re welcome! Appreciate the positive feedback!
April 13, 2020 @ 7:43 am
Hi,
Firstly, your website and data look fantastic, thank you. It is really great reading.
I have a question on ‘D’ in the above, you state that the 10D @ 50D is best risk-adjusted reward, would you mind expanding on this, do you mean the delta? and if so, what does 10 delta at 50 delta mean? I haven’t seen any other reference to ‘D’ other than talking of delta and I think I have got confused!
Thank you in advance for your input, really am finding your research very insightful,
Best,
April 13, 2020 @ 12:48 pm
Thanks for visiting Tintintrading! Glad to hear the info is helpful.
Yes, the “D” is shorthand for “delta.” The “10D @ 50D” is a typo – good catch! It should read “10D @ 50% Max Profit or Expiration” I have corrected it 🙂
April 20, 2022 @ 3:53 pm
Most places are now 0 Commissions. Is it possible to see the difference without having to pay for any commissions. I think some of these would be more profitable, esp if you are just utilizing margin as free monies to use the option premiums to buy more $SPY shares continually.
April 23, 2022 @ 7:14 pm
True, some places have $0 per trade and $0 contract fees. However, for all of 2007-2010 and most of 2010s, fees were $4.99 to $19.99 per trade or more depending on broker, before contract fees. Using $1 throughout is generous since more than half the backtest duration had several multiples higher commission drag.
April 25, 2022 @ 9:58 pm
So essentially without commission brokerage fees like most are now, these strategies comparatively to BUY/HOLD $SPY can be quite lucrative. My current strategy through Robinhood due to their easy margin access is to run 0 DTE $SPY CSPs around 10-20 DELTA. I use the instant option premium received (once option is “sold” of course), and then buy fractional $SPY shares. The margin is free to utilize until one of the CSPs is exercised. If exercised, even with the interest rate, a single high delta (~30-50) will make a significant amount of option premium and I won’t be holding the 100 shares for long. As I gain option premiums, Robinhood expands my margin and as my account value from share appreciation expands so does my margin access. Robinhood has really worked out well for what I’m doing.
Appreciate the backtesting. I look forward to seeing more 0 DTE $SPY backtests when SPDR adds every day expirations soon. CBOE is adding them to $SPX right now. This is one of the easiest and safest option money makers I could think of after trying some other strategies. I don’t mind holding $SPY long term so there is no downside to me. I have about 20+ more yrs in the market before retirement. I can’t wait to see what the next 5yrs will bring.
April 30, 2022 @ 12:05 am
That strategy sounds profitable *until* you have to buy back the 100 shares of SPY that were called away in order to re-run the strat.
Suppose SPY is trading at $412.00 and a 30-delta May 2 short call struck at 418 provides $1.90 of premium. We have another 2.5% up day and SPY closes at $422.30. You collected $190 in premium + $600 ( [418 strike – $412 underlying start price] * 100 shares) on the long SPY position. You also invested the $190 of premium in fractional SPY shares at the time or order entry that also grew the same 2.5% to 194.75 for a total profit of $794.75. Great!
When you go to repeat this trade, you’ll need to repurchase 100 shares of SPY, which are now at $422.30. You received $41,800 after your original shares are called away + $194.75 in existing SPY shares for a total balance of $41,994.75. However, 100 shares of SPY now costs $42,230. You’ll have to contribute an additional $235.25 in order to purchase the necessary 100 shares to run another covered call.
It’s not technically possible to “blow up” from trading a covered call strat (ignoring downside risk of the underlying); the account balance will indeed go up when shares are called away and a “loss” is observed on the short call. The loss is “felt” when one has to put up the capital to buy back in and repeat the strat.
I do look forward to running additional backtests once there is ample history of Tues/Thurs expiring SPX options. Stay tuned!
April 30, 2022 @ 7:51 am
I greatly appreciate the feedback! Although I’ll have to reread your reply a couple times talking about buying back 100 shares to re-sell a Covered Call. I was “gaining” those shares through a exercised CASH SEC. PUT., then just high DELTA (Covered Call) wheel it until those shares are called away.
So, essentially the option premium throw outs (gains from the margin stack of “cash” that does not affect my underlying assets) just go into my continual $SPY long term holdings. While CSP being exercised and then a covered call being exercised does affect my underlying base holdings “average/base cost”, as long as it’s moving along at a slow pace, taxes shouldn’t be too terrible. I’ll start to maximize tax savings like IRA/401k/HSA accounts to offset those capital gains YoY.
I do greatly look forward to more back testing. I had thought about this with $QQQ as well prior to having the high capital but the swings in the last 6 months are getting a bit ridiculous, even for 2.5% (-2.5%) is a high chance so not enough back testing historical points are avail for the current environment.
April 30, 2022 @ 9:23 am
oof – I completely misread CSP as a CC. Sorry about that!
April 30, 2022 @ 10:44 am
Very interesting! I’m curious, why 0 DTE as opposed to something longer like 30?
And this is basically a wheel strategy with margin no? I like wheeling too but the strategy gets tricky when your puts get assigned and the asset tanks. What if you get assigned on SPY then there’s a big marker correction that takes years to recover from—? How much would it have to crash for you to get margin called?