SPY Short Strangle 45 DTE Options Backtest

In this post we’ll take a look at the backtest results of opening one SPY short strangle each trading day from Jan 3 2007 through July 19 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 20 backtests in this study evaluating over 62,000 SPY short strangle trades.
Let’s dive in!
Contents
Prior Research
Basics
How to Trade Options Efficiently Mini-Series
Backtesting Concepts
Building a Research Framework
AAPL – Apple Inc.
- AAPL Short Put 0 DTE Cash-Secured
- AAPL Short Put 45 DTE Cash-Secured
- AAPL Short Put 45 DTE Leveraged
- AAPL Long Day Trade
AMZN – Amazon.com, Inc.
BTC – Bitcoin
C – Citigroup Inc.
DIA – SPDR Dow Jones Industrial Average
- DIA Short Put 7 DTE Cash-Secured (coming soon)
- DIA Short Put 7 DTE Leveraged (coming soon)
- DIA Short Put 45 DTE Cash-Secured (coming soon)
- DIA Short Put 45 DTE Leveraged (coming soon)
DIS – Walt Disney Co
EEM – MSCI Emerging Markets Index
GE – General Electric Company
GLD – SPDR Gold Trust
IWM – Russel 2000 Index
- IWM Short Put 7 DTE Cash-Secured
- IWM Short Put 7 DTE Leveraged
- IWM Short Put 45 DTE Cash-Secured
- IWM Short Put 45 DTE Leveraged
- IWM Long Day Trade
MU – Micron Technology, Inc.
QQQ – Nasdaq 100 Index
- QQQ Short Put 7 DTE Cash-Secured
- QQQ Short Put 7 DTE Leveraged
- QQQ Short Put 45 DTE Cash-Secured
- QQQ Short Put 45 DTE Leveraged
SLV – iShares Silver Trust
- SLV Short Put 45 DTE Cash-Secured
- SLV Short Put 45 DTE Leveraged (coming soon)
SPY – S&P 500 Index
- SPY Long Put 45 DTE Optimal Hedging
- SPY Long Call 45 DTE
- SPY Long Call 730 DTE LEAPS
- SPY Short Put 0 DTE Cash-Secured
- SPY Short Put 0 DTE Leveraged
- SPY Short Put 0, 7, 45 DTE Leveraged Comparison
- SPY Short Put 2-3 DTE M,W,F “BigERN Strategy” (guest post)
- SPY Short Put 7 DTE Cash-Secured (coming soon)
- SPY Short Put 7 DTE Leveraged
- SPY Short Put 45 DTE Cash-Secured
- SPY Short Put 45 DTE Leveraged
- SPY Short Put 45 DTE Leveraged binned by IVR (coming soon)
- SPY Short Vertical Put Spread 0 DTE (coming soon)
- SPY Short Vertical Put Spread 45 DTE
- SPY Short Call 0 DTE Cash-Secured
- SPY Short Call 0 DTE Leveraged
- SPY Short Call 45 DTE Cash-Secured
- SPY Short Call 45 DTE Leveraged
- SPY Short Straddle 45 DTE
- SPY Short Strangle 45 DTE
- SPY Short Iron Condor 45 DTE
- SPY Wheel 45DTE
- Making Money in Your Sleep: A Look at Overnight Returns
- A Bad Case of the Fridays: A Look at Daily Market Returns
T – AT&T Inc.
TLT – Barclays 20+ Yr Treasury Bond
TSLA – Tesla, Inc.
USO – United States Oil Fund
VXX – S&P 500 VIX Short-Term Futures
- VXX Short Call 45 DTE Cash-Secured
- VXX Short Call 45 DTE Leveraged
- VXX Short Vertical Call Spread 45 DTE
VZ – Verizon Communications Inc.
Other
Methodology
Core Strategy
- Symbol SPY
- Strategy Short Strangle
- Start Date 2007-01-03
- End Date 2019-07-19
- Positions opened 1
- Entry Days every trading day
- Timing 4pm ET (EOD pricing)
- Strike Selection
- 2.5 delta +/- 1.5 delta, closest to 2.5
- 5 delta +/- 1.5 delta, closest to 5
- 10 delta +/- 2 delta, closest to 10
- 16 delta +/- 3 delta, closest to 16
- 30 delta +/- 3 delta, closest to 30
- Trade Entry
- 2.5 delta short put / 2.5 delta short call
- 5 delta short put / 5 delta short call
- 10 delta short put / 10 delta short call
- 16 delta short put / 16 delta short call
- 30 delta short put / 30 delta short call
- Trade Exit
- 25% max profit or 21 DTE, whichever occurs first
- 50% max profit or 21 DTE, whichever occurs first
- 75% max profit or expiration, whichever occurs first
- Hold till expiration
Days Till Expiration
Some studies look at ultra-short-duration option strategies while others explore longer durations. The nuances and range for each approach are summarized below.
0 DTE Strategies
Between 0 and 3, closest to 0.
The range is up to 3 days from expiration for two reasons: to allow opening positions on Friday that have a Monday expiration and to allow more opportunities for occurrences of strategies focused in the 10-40 delta range. As expiration nears, it becomes increasingly difficult to open positions in this range.
This visual from Options Playbook does a great job illustrating the concept. Notice how at 1 DTE delta jumps from .50 to .10 with a single dollar change in the underlying. Compare this to the 60 DTE scenario where the change in delta for a $1 change in underlying is much smaller. By allowing positions to be opened as far out as 3 DTE, delta sensitivity to $1 differences in strikes becomes muted.

7 DTE Strategies
Between 3 and 11, closest to 7.
The range is 4 days either side of 7 to ensure a position can be opened each trading day while remaining true to the duration target. For example, opening a position Wednesday will have either a 2 DTE horizon (next Friday) or a 9-DTE horizon (the Friday after next). In this scenario the 9-DTE position would be selected.
45 DTE Strategies
Between 28 and 62, closest to 45.
The range is 17 days either side of 45 to account for quadruple witching. As the end of each calendar quarter approaches, namely during the last 7-10 days of Mar, Jun, Sep and Dec, the expiration dates of option contracts widen significantly.
730 DTE Strategies (LEAPS)
Between 550 and 910, closest to 730.
The range is 180 days either side of 730 to account for underlying that have LEAPS expirations in 6-month increments.
Calculating Returns
Returns are calculated daily using notional returns. The change in daily values of the option is divided by the stock price at the time of order entry.
The formula for daily return is:
option profit / opening stock price
.
For example, suppose we opened a XYZ short put at $1.10 on 1/3/2007 with a stock price of $50:
- On 1/4/2007, our option increased to $1.50. The notional daily return calculation would be ( $1.10 – $1.50 ) / $50 = -.008 which is -.8% daily return on 1/4/2007
- On 1/5/2007 our option decreased to $0.80. The notional daily return calculation would be ( $1.10 – $0.80 ) / $50 = .006 which is .6% daily return on 1/5/2007
By using notional returns on daily stock values when calculating returns we isolate the performance of the option strategy from the effects of leverage. This allows us to identify strategy performance in a non-margin context such as in a US-based retirement account.
By measuring strategy performance as a daily percentage change we abstract the strategy performance from absolute dollar gain/loss to a relative percentage value. This is a fancy way of saying the strategy becomes capital agnostic. In other words, think of an ETF that executes the respective option strategy. We can allocate $100 to the “option ETF” and $100 to the underlying and have an apples-to-apples, dollar-for-dollar comparison.
Monthly and Annual Returns
To identify the monthly and/or annual returns for an option strategy, the respective daily returns are summed.
Graphing Underlying and Option Curves
The underlying position derives its monthly performance values from Portfolio Visualizer. Portfolio returns are calculated in a compound fashion using this monthly data.
Option strategies derive monthly performance values from the backtesting tool by summing the respective daily returns. Portfolio returns are calculated using the following formula:
( backtest starting capital * monthly return ) + portfolio balance

Margin
Margin requirements and margin calls are assumed to always be satisfied and never occur, respectively.
In practice the option strategy may experience varied performance, particularly during high-volatility periods, than what’s depicted. Margin requirements may prevent the portfolio from sustaining the number of concurrent open positions the strategy demands.
Moneyness
Positions that become ITM during the life of the trade are assumed to never experience early assignment.
In practice early assignment may impact performance positively (assigned then position experiences greater losses) or negatively (assigned then position recovers).
Commission
The following commission structure is used throughout the backtest:
- 1 USD, all in, per contract:
- to open
- to close early
- expired ITM
- 0 USD, all in, per contract expired OTM / worthless
While these costs are competitive at the time of writing, trade commissions were significantly more expensive in the late 2000s and early 2010s.
In practice strategy performance may be lower than what’s depicted due to elevated trading fees in the earlier years of the backtest.
Slippage
Slippage is factored into all trade execution prices accordingly:
- Buy: Bid + (Ask – Bid) * slippage%
- Sell: Ask – (Ask – Bid) * slippage%
The following table outlines the slippage values used and example calculations:

- A slippage % of .50 = midpoint
- A slippage % of 1.00 = market maker’s price
Inflation
All values depicted are in nominal dollars. In other words, values shown are not adjusted for inflation.
In practice this may influence calculations that are anchored to a particular value in time such as the last “peak” when calculating drawdown days.
Calculating Strategy Statistics
Automated backtesters are generally great tools for generating trade logs but dismal tools to generate statistics. Therefore, I build all strategy performance statistics directly from the trade logs. Below is a breakdown on how I calculate each stat and the associated formula behind the calculation.
Win Rate
Trades that were closed at management targets (profit, DTE) as winners but became unprofitable due to commissions are considered non-winning trades. This phenomenon is typically observed when managing 2.5D and 5D trades early.
( count of trades with P/L > 0 ) / count of all trades
Annual Volatility
The standard deviation of all the monthly returns are calculated then multiplied the by the square root of 12.
STDEV.S(monthly return values) * SQRT(12)
Worst Monthly Return
Identify the smallest value among the monthly returns:
MIN(monthly return values)
Average P/L per Day
This measures changes in capital efficiency due to early management.
( average P/L per trade ) / average trade duration
Average Trade Duration
This measures the average number of days each position remains open, rounded to the nearest whole day.
ROUND ( AVERAGE ( trade duration values ) , 0 )
Compound Annual Growth Rate
This measures the compounded annual rate of return, sometimes referred to as the geometric return. The following formula is used:

Sharpe Ratio
Total P/L alone is not enough to determine whether a strategy outperforms. To get the complete picture, volatility must be taken into account. By dividing the compound annual growth rate by the volatility we identify the risk-adjusted return, known as the Sharpe ratio.
strategy CAGR / strategy volatility
Profit Spent on Commission
The following formula is used to calculate the percent of profits spent on commissions:

If a strategy is depicted as having percent greater than 100, this means the strategy is unprofitable due to commissions but would have been profitable if trades were commission free throughout the duration of the backtest.
If a strategy is depicted as “unprofitable” this means the strategy lost money even if trades were commission free throughout the duration of the backtest.
Total P/L
How much money is in the portfolio after the study? This stat answers that question and depicts it as a %
( portfolio end value / portfolio start value ) - 1
Scope
This study seeks to measure the performance of opening short strangle positions and will interpret the results from the lens of income generation relative to buy-and-hold SPY.
The utility of the short strangle strategy as a portfolio hedging tool or other use will not be discussed and is out of scope.
Results
Win Rate


As a reminder, trades that were closed at profit targets but became unprofitable due to commissions are considered non-winners for the purposes of this calculation.
The riskier the trade the lower the win rate.
For the low-risk (2.5D, 5D) trades:
- Managing at 75% max profit is the optimal approach for maximizing win rate
- By managing at 75% we avoided the sharpest market moves hold-till-expiration experienced, eeking out a slight improvement.
- 25% underperformed due to profitable trades being closed for a loss after commissions.
- 50% underperformed 25% due to more winning trades turning into losers relative to 25% while having the same commission drag that forced several of the early trades to be unprofitable after closing.
Managing at 50% max profit or 21 DTE had the worst win rate at each risk level.
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


Earlier management results in shorter trade duration.
Lower-risk trades reach profit targets faster than higher-risk trades.
Compound Annual Growth Rate
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Sharpe Ratio
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Profit Spent on Commission


In the best-case scenario with no early management we forfeit nearly 11% of our profits just for showing up.
Implementing early management to reap improved portfolio volatility (20-34% lower) and max drawdowns (35-60% softer worst month) comes at the cost of an additional 6.39% to 30.45% of our profits.
Managing trades early is a potentially-expensive activity!
Total P/L

Riskier trades yielded greater total P/L.

As commissions represent a smaller proportion of credit received, managing earlier begins to outperform holding till expiration.
Overall
How do the short strangle strategies compare to buy-and-hold SPY?

Systematically selling strangles was profitable across all strategies. Of course, some strategies performed better than others.
All short strangle strategies underperformed buy-and-hold SPY by a wide margin.
Discussion
Retail Broker Business Model
Short strangle strategies are a great tool for retail brokers to pitch as it’s great for their bottom line.
The are net positive which helps ensure clients don’t blow up their account. That is, retail traders can grow their capital and subsequently increase their trading activity.
Meanwhile, the retail broker can expect to collect roughly 35% of all short strangle profits by way of commissions.
Summary
Systematically selling short strangles on SPY is profitable for retail traders and retail brokers.
The highest grossing short strangle strategy yielded roughly one quarter the return of buy-and-hold SPY.
16D @ 50% max profit or 21 DTE had the best risk-adjusted return among the short strangle strategies.
None of the short strangle strategies matched or outperformed buy-and-hold SPY.
Thanks for reading 🙂
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Thoughts? Feedback? Dedications? Shoutouts? Leave a message in the comments below!
July 26, 2019 @ 5:29 pm
Thanks for doing these. It’s eye opening.
You were comparing your methodology here with ERN’s at the beginning of this series. I’ve read his series on the 4% withdrawal and optimal allocations, and he seems like a pretty smart guy…. and at least, someone who would he tracking his P/L results over time.
The question I have is: how can someone have done this for years and allocated a significant portion of their portfolio to it if it’s just not that good?
July 27, 2019 @ 1:08 pm
Big Ern is using leverage which spintwig test does not really add in here. If you add in leverage (which is easy to do with options) you can probably out-perform buy and hold but that comes at a higher risk. It would be interesting to see what would happen if you took all of spintwig’s test and scaled them all up to have the same volatility as buy and hold (doing an apples to apples comparison based on risk). My suspicion is that some of these strategies will start to outperform buy and hold at that point.
July 27, 2019 @ 8:43 pm
This strategy is indeed very leveraged – 5x in fact – and increases in leverage as the strategy underperforms SPY.
ERN is using around 2.25x, down from his initial 3.25x, IIRC.
Each position at the start of the study is ~5600 in margin requirement (SPY @ $140 in Jan 2007; margin is ~20% notional; 2800 each for put and call).
Using the hold-till-expiration strategy there are on average 35 positions open at any given time which consumes roughly the entire 200k starting portfolio.
You’re welcome JEI —
The short puts he trades are the best performing options strategy of all I’ve backtested to date. It’s a profitable activity but it’s not as profitable as b/h SPY.
I propose he would be better off purchasing SPY on margin in an amount comparable to his delta exposure and letting it ride for as long as he intends to trade options / leverage his portfolio.
For example, if he’s writing 3-5 contracts of 5D puts on SPX, he could instead purchase 30-50 shares of SPY. It would be identical exposure to SPY without all the complexity, cost, and constant market checking of active trading. The returns would be higher, tax deferrable and potentially have a lower tax rate via LTCG, too.
I stopped trading this month due to what the research suggests.
July 27, 2019 @ 9:33 pm
My theory is many of us are trading options due to TT’s research. Several option strategies generate positive returns, the “free” leverage makes the strategy attractive and there’s no other body of info available to measure performance.
This is the only research I’m aware of that compares option strategies against b/h SPY.
I’d be willing to wager Karsten might not have adopted put writing if this data was available before he got into the activity.
Writing short puts, unless cash secured, is a leveraged long strategy. The reason it’s a sequence of returns hedge is because it’s making the withdrawal rate lower by way of leveraging the portfolio. That is, it’s artificially making the portfolio larger and the option profits are the returns on the leverage.
Since we know SPY outperforms short puts, we can continue to mitigate sequence of returns by again making the portfolio artificially larger through leverage. However, instead of using options, buy more SPY. The outperformance of SPY vs short puts easily offsets margin interest [at IB rates] and much more.
July 28, 2019 @ 8:03 am
Totally agree about the TT research and I am not defending the options strategies (as you know me by now 🙂
But, I also don’t thin its fair to compare buy and hold returns to short option strategy returns without also accounting for the risk/volatility. It would be like me comparing a long stock position to a long bond position and saying stocks are better because they have higher returns. Its the “risk adjusted” returns that matter most. My guess is that BigErn is more comfortable with his risk-adjusted return profile vs. simple buy and hold as he has a bit of a downside cushion with any smaller down move in SPX.
July 29, 2019 @ 1:41 pm
Great point!
He does have his collateral invested in mostly-bond-like instruments as opposed to SPY. The utility of options as a hedging tactic or tool to achieve a particular risk / return profile is not something I have covered or explored in detail.
Karsten, would love to get your input on the topic!
May 3, 2020 @ 3:40 pm
Hello, I’m just wondering the impact of high volatility on this topic? How would it play out if 1) We assume VIX to continue to remain high >30
2) SPY slumps due to the multiple factors in play right now. In a best case scenario, with unlimited QE, I expect spy to float around the 270-290 range but beyond the elections, I expect a slump
Would a buy and hold strategy still outperform short strangles in such conditions?
As a follow up question, would using high IVR/percentile (easy enough to check using IB screener) or cm Williams VIX fix indicator to identify individual stocks ideal for short strangles, have the same outcome?
Thank you for this wonderful resource!
May 3, 2020 @ 3:43 pm
Addendum: I’d also like to note that the constitution of SPY is not the same as it was in the past. I’m reminded of this fact when it was announced that Macy’s was being dropped after their slump.
May 3, 2020 @ 4:01 pm
Addendum 2: To summarize these rambling thoughts 😄, in times of high IV and an impending short-medium term bear run:
1) Does the 10D, 25% profit take during a period of violent downswings seem to be an ideal strategy?
2) Would you consider stop losses?
Thank you!
May 5, 2020 @ 8:29 pm
Hi Noobie – thanks for stopping by. Happy to hear the resources are useful.
For your first question, it depends what your goal(s) is(are). Is there a particular return profile you’re targeting? If you can share the specific goal(s) I can provide some guidance as for what would best achieve that goal given the research to date.
Stop losses have historically underperformed as an exit strategy vs taking profits early so I would avoid them. This doesn’t speak to risk profile though. Neither my portfolio strategy nor personal risk tolerance support “unlimited risk” scenarios such as uncovered short calls. From a risk management perspective, a protective long call would be a more robust approach to managing risk than a stop loss. Adding a long call avoids the issue of the price gapping past a stop loss target.
May 7, 2020 @ 1:11 am
Thanks for taking the time to answer rookie questions! Your data is a goldmine for (many of) us noobies who’ve relied on anecdotal wisdom in the past.
Having lost a significant portion of my capital to otm naked options, I’d say capital preservation followed by growth would be my goals.
That being said, I’ve read that chasing number targets can introduce judgement errors. My objective in introducing stop limits was to eliminate my subjective interpretation of an ideal exit position. From your data, it seems like at least on the loss side, 100% seems to be an evidence based exit.
My question is therefore restricted to the profit taking side. You’ve shown that a 25% (and 50% in some markets) exit on the upside is the ideal strategy. Assuming you’ve reached that 25% of credit goal on a short strangle, could I place a trailing stop limit order on a highly liquid choice such as SPY? I realize the risk of not executing with a stop limit order as well as that of theoretically getting a terrible value with a stop alone. You’ve also mentioned that a 21 day exit (regardless of what % you have at that time is a good policy…and I’m assuming the rising gamma beyond that plays a big role); so once again, assuming you’ve reached your 25% goal before 21 days; what would the data show is a potential “bonus” above 25% that you could theoretically gain were you to leave the trade to a trailing stop loss limit policy with that 25% being your limit?
Thank you! And yes, for the time being, I’ve resorted to spreads.
May 10, 2020 @ 1:16 am
Sure thing! Happy to hear it’s helpful
Genuine question: are you open to strategies that are not options based? I ask because an overwhelming majority of option strategies underperform buy/hold and even a blended 80/20 portfolio.
If sticking with options I’d avoid short calls on SPY or any strategy on SPY that has a short call component – short vertical or calendar spreads, collars, strangles, etc. SPY short calls lose money over time and is, at a minimum, a P/L drag on the other half of a multi-leg strategy.
That leaves short puts and long calls, both bullish strategies with essentially opposite risk profiles. One collects a little premium often for the risk of a big loss and the other costs premium day in and day out with the risk of not getting a leveraged payout. Neither are particularly appealing IMHO.
Stop orders can work but they subject the portfolio to the negative side whipsaw whereas profit exits subject the portfolio to the positive side of whipsaw.
My $.02 is avoid the stop orders and address downside risk at order entry with delta selection and/or with a protective long put to mitigate losses. If using spreads be mindful of the uncommon but potentially expensive Pin Risk.
Hopefully this helps. I’m not sure I understand your last question though about bonuses.
February 1, 2021 @ 4:08 am
Hi
I am a bit blown away by your research. It is excellent and comprehensive, so thanks for providing.
It is also amazing how easy it is to be fooled by options. Thought experiments and logic don’t really seem to count for much. As an example, it has always seemed to me that if short puts work as a strategy (and your research seems to indicate they do), then short strangles/straddles should be better as the short call is negatively correlated with the short put, so even if the short call is net loss-making, the risk adjusted return should improve. But this test seems to show that this is not the case!
In the comments above, you seem to be saying that essentially having done massive amounts of research, that we (retail traders at large) should probably avoid options, just go long the underlying with or without leverage? Is this the case? I should say that I have certainly lost more in options than I have made, over time, and I am getting to an age when I need to stop doing that. But it is hard to stop looking for that magic trade that will offer unrivaled secure returns.
A further question – it seems to me, from various tests I have done, that it might be advantageous (in a risk adjusted sense) to use options to extract an income from a portfolio. So, selling covered calls on a portfolio. The call is profitable when the market falls, which prevents the investor selling shares when they have fallen. Any thoughts on this? I might be interested in a backtest, if you haven’t already done one.
February 2, 2021 @ 10:45 pm
Hi Jo – happy to hear the research is helpful!
Yeah, mental models seem to be at odds with the data. Covered calls (half of the strangle/straddle trade) is a great example.
When the underlying does well, yes, the long equity makes money and, yes, premium was received. The total return of the trade is: Long Underlying Profits + Premium Received – ITM loss on call, which is always a positive number. Because the total return is always positive, the losses are masked to the untrained eye.
It’s not until the next covered call position is opened that the loss is “observed.” And it’s not an explicit observation – the cost is in buying the now-more-expensive shares of the underlying. For example, suppose XYZ had a covered call strike at $80 and the underlying went from $70 to $100. $10 is “made” but $20 is “lost” to the covered call. When 100 more shares need to be purchased to setup the next covered call trade, one has to find that additional $20/share to establish the long underlying position.
Each underlying and option strategy has its own performance characteristics. What may work on one underlying may not work on another. More often than not, yes, total and risk adjusted returns of long underlying outperform most option strategies. I’ve seen exceptions based on underlying (short puts on EEM https://spintwig.com/eem-short-put-options-backtest-results/#Results) and exceptions based on custom signal(s) (private client research), but those are not the norm.
There’s SPY 45DTE covered calls https://spintwig.com/spy-short-call-strategy-performance/#Results that may shed some light on the topic. There’s also a leveraged version, as well as 0DTE versions of each, that may be helpful too.