USO Short Call 45 DTE Cash-Secured Options Backtest

4 min read

In this post we’ll take a look at the backtest results of opening one USO short call 45 DTE cash-secured position each trading day from May 9 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 USO.

There are 10 backtests in this study evaluating over 30,300 USO short call 45 DTE cash-secured trades.

Let’s dive in!

Summary

Systematically selling short calls on USO was profitable when positions were held till expiration.

All USO short call strategies outperformed buy-and-hold USO with regard to total return.

Methodology

Strategy Details

• Symbol: USO
• Strategy: Short Call
• Days Till Expiration: 45 DTE +/- 17, closest to 45
• Start Date: 2007-05-09
• End Date: 2019-08-06
• Positions opened per trade: 1
• Entry Days: daily
• Entry Signal: N/A
• Timing: 3:46 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 call
  • 10D short call
  • 16D short call
  • 30D short call
  • 50D short call
• 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 due to commission drag.

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 took longer to reach profit targets than lower-delta positions. 5D was an exception.

Compound Annual Growth Rate

Sharpe Ratio

Profit Spent on Commission

74.68% – the average percent of profits spent on commission across all profitable strategies.

Total P/L

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

Total return performance was mixed across delta targets.

The higher the delta the higher the total return. 50D hold-till-expiration was an exception.

Overall

Seven of the 10 USO Short Call 45 DTE cash-secured option strategies were profitable.

Discussion

USO experiences a spike up in the first half of 2008 followed by two drops – one that occurs between 2008 / 2009 and one that occurs between 2014 / 2015. Aside from these events, USO remains relatively flat.

Maintaining a systematic, market-agnostic long-term short call strategy in USO would have been a challenging endeavor. Short puts on USO would have been an unprofitable endeavor, too. Albeit more profitable than buy-and-hold USO. This is a scenario where a simple short option strategy outperformed buy-and-hold yet was unprofitable.

Additional Resources

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