TLT Short Put 45 DTE Cash-Secured Options Backtest

2 min read

In this post we’ll take a look at the backtest results of opening one TLT short put each trading day from Jan 3 2007 through August 6 2019 and see if there are any discernible trends. We’ll also explore the profitable strategies to see if any outperform buy-and-hold TLT.

There are 10 backtests in this study evaluating over 30,700 TLT short put trades.

Let’s dive in!

Summary

Systematically selling short puts on TLT is profitable.

All TLT short put strategies underperformed buy-and-hold TLT.

Methodology

Strategy Details

• Symbol: TLT
• Strategy: Short Put
• Days Till Expiration: 45 DTE +/- 17, closest to 45
• Start Date: 2007-01-03
• End Date: 2019-08-06
• 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 21 DTE, 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

Early management underperformed holding till expiration with regard to win rate.

The higher the delta the lower the win rate. 5D early management was an exception.

Annual Volatility

Worst Monthly Return

Average P/L Per Day

Average Trade Duration

Managing trades at 50% max profit or 21 DTE yielded average trade durations less than half those of holding till expiration.

Higher-delta positions generally took longer to reach profit targets than lower-delta positions.

Compound Annual Growth Rate

Sharpe Ratio

Profit Spent on Commission

23.83% – the average percent of profits spent on commission across all option strategies.

Total P/L

Early management underperformed holding till expiration with regard to total return.

The higher the delta the higher the total return.

Overall

All option strategies were profitable.

Discussion

The primary driver of TLT’s performance is the 30-year US treasury rate. Let’s overlay data from FRED onto the overall performance chart.

As expected, there is a strong inverse relationship between TLT and the 30-year interest rate.

Additional Resources

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