Skip to content


  1. Tomaz
    March 13, 2020 @ 6:00 am

    Thanks for this study. One question/suggestion which I think could help leverage and simple strategy a lot. Selling only when price above SMA200. Can you do a backtest on this? A lot of trendfollowers and also big institutions use this and if you check back, biggest drawdowns always happen with price below SMA200 (or any similar number).. If one stops selling or / and immediately exits all open positions when price is below SMA200 or maybe when end of month it is below etc.. There are many variations but if you look at 2008 selloff for example, most of the carnage and VIX spike happened when price was already below SMA200 for quite some time…
    Could you test something like that?


      March 13, 2020 @ 2:14 pm

      You’re welcome!

      I could, but I think the results will be similar to selling IV is at or above/below “x” value. While working on this study I explored selling in various IV environments and no matter how I binned the results (note: manipulating the bins to yield a desired outcome is precisely why I avoid studies based on indicators – it’s curve fitting and enables manipulating results to match a narrative) there was no particular strategy that was above the rest.

      I realize me stating this outcome is quite different from me publishing a study that shows the outcome. Once I’m able to produce and publish studies using automation, variations similar to what you mentioned might be on the roadmap.


  2. pdadi
    March 13, 2020 @ 12:30 pm

    I couldn’t figure out optimal leverage ratio from your research. Am I missing something?


      March 13, 2020 @ 2:35 pm

      I’d use the respective average margin utilization as the recommended leverage ceiling. For example, a 50% average margin utilization equates to 2.5x leverage; each position assumes the margin requirement is 20% of notional exposure.

      The optimal leverage ratio in hindsight will be different depending on the point in time being evaluated. The average margin utilization values are the result of tuning each strategy such that it brushes up against a potential margin call but never breaches Reg-T limits (assumes no VIX expansion risk or broker policy changes during times of market stress).


  3. Tomaz
    March 17, 2020 @ 6:13 am

    I have problems understanding leverage returns here too. 30 delta leveraged return vs unleveraged managed at 25 % or 21DTE show very different results, 56 % vs 247 % total return. But lets say you starti with 100.000 USD account and use unleveraged version. Because you open positions every day, would you not tap into leveraged with that too? I mean after 10 days you can have 10 short SPY positions open and on 100.000 account that is already using leverage, because you can only have 3-4 if you take 100.000$ account.

    So my question would be ok normal version just sold 1 SPY 30 delta option each day. Leveraged version sold how many? 2-3 options each day? I know this can change how many options were opened at any different time because of closing at 25 % profit, but if I want to use this strategy of 30 delta with leveraged version, becuase is recovers 3x faster, has shallower drawdowns and better returns, how many options would I have to sell each day on 100.000 USD account? I think 100.000 USD is just barely enough for unlevered version if one sells option each day, let alone to use leveraged verison. But at your end grapf with leveraged and unleveraged both start at 100.000 USD.

    maybe you can dumb this down for some of us readers that have problems understanding this. Also as you wrote for some other reader, margin is calculated as 20 % of notional and when I look at 30 delta option with 25 % profit target, it uses about 27 % which would again indicate no leverage most of the time. If you stay below 30 % average margin utilisation and 20 % is anyway used as soon as you open even 1 position, then I see no leverage usege. Or maybe just slight to get from 20 % to 27 % margin utilisation, but then how can returns be so different compared to “normal” version where also no leverage is used but returns are substantially less.. And if version one sells one option each day, how many does version 2 sell for 30 delta for example..
    I think I am missing something here please help me out 🙂


      March 25, 2020 @ 2:05 pm

      If starting with a 100k portfolio and opening a position daily, yes, one will eventually become leveraged (and/or the account will fail to support additional positions). Similarly, suppose you have enough capital for “half” an option contract – do we calculate a return on idle cash or do we find a creative way to obtain exposure to half an option contract via delta hedging?

      The solution to both of these issues is to calculate returns using a “daily average.” I speak to it in the methodology section of the cash-secured studies. The takeaway is that the results should be viewed as if you’re investing in an ETF that implements the given strategy. In practice, the larger the portfolio the closer the results will be to what’s shown in the calculations, and similarly, the smaller the portfolio the greater the potential variance from the depicted results.

      Agree – at today’s prices 100k would only be able to support 3-4 positions at a time, at which point one would have cease opening new positions until the existing ones are closed due to leverage. Individually it may be difficult to mirror the strategy and consequently the results. I do have some institutional subscribers so they may be better positioned to realize the returns.

      As for the 27% average margin utilization, that implies a 1.35x ( 27 / 20 ) leverage factor which is in the ballpark of TastyTrade research (see slides 4 and 5 for 1ST strangles at

      Something to keep in mind is that 27% (1.35x) is the average utilization. It will dip lower as multiple positions close during an upswing / vol crush event and will be higher during times of market stress. In general we’re maintaining ~35% more exposure / returns and at times the margin utilization is 100% or 5x, so this is where the outsized gains come from vs a cash-secured strategy. Both strategies open a single position daily.

      Hopefully this helps!


  4. Ivan
    May 12, 2020 @ 12:03 pm

    Hi there,

    When you say ‘manage’ the trade at 21 DTE, what does this exactly entail? Closing the trade and opening a new one, or rolling further out or up/down strikes?



      May 12, 2020 @ 3:25 pm

      “Managing” the trade means closing the position.

      For order entry, the strategy opens a new position daily. For order exit, the position is closed when the respective criteria is met.


  5. Noobie
    May 14, 2020 @ 9:35 pm

    Wonderful analysis , thanks spintwig! If one were to remove the emotionality from the picture and acknowledge the higher volatility, would the 50D with 25% exit make the most sense from a CAGR perspective?


      May 17, 2020 @ 12:18 am

      Thanks, glad to hear it’s useful! It would (assuming short puts are your tool of choice to generate returns)!

      Just keep in mind the backtest was run with highlight bias. During times of drawdowns the portfolio was within $100 or less of getting margin called.


      • Noobie
        May 19, 2020 @ 5:12 pm

        Thank you, that is something to think about in these black swan event times. If I were to hazard a guess, would put spreads be a viable alternative? Those drawdown risks don’t exist albeit at a significant hit to maximum profit. Would you have any backtested wisdom about that?


          May 22, 2020 @ 3:33 pm

          There are a several ways to approach risk management.

          One strategy is to start at order entry by selecting a delta that aligns with your risk profile. Another is to change the option strategy from short puts to spreads. In both scenarios, position sizing (number of open positions) as well as % of margin utilization is important. The margin collateral itself – whether it’s held in SPY or BIL positions – makes a material difference too.

          There are a a lot of variables that go into optimizing a strategy. If the goal is total returns at the expense of an increase in volatility, have you considered a simple 1.25x leveraged play by purchasing SPY on margin or using futures such as /ES or MES? It will roughly match the CAGR of the 30D @ 25% max profit strategy while requiring significantly less time on your part as well as substantially lower amounts of leverage and consequently lower margin call risk. Tax efficiency will also be superior.


  6. Valentin
    May 25, 2021 @ 6:42 am

    What about 50D with 5%, 10%, 15%, 20% Profit taking..? Have you tested those?
    Could there be better results with regards to profit maximization than 50D 25% ?
    And what is the displayed leverage multiple here.. 1.5x 2x ?

    Best Regards



      May 25, 2021 @ 12:19 pm

      I haven’t explored in 5% profit-taker increments. Market data is too “noisy” to support narrow adjustments such as these. There is a material risk of overfitting (

      The max margin utilization target (leverage) is 100% (5x). Average margin utilization may be lower due to strategy mechanics.


Leave a Reply

Your email address will not be published. Required fields are marked *