USO Short Call 45 DTE Cash-Secured Options Backtest
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!
Contents
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)
- 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
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Worst Monthly Return
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Average P/L Per Day
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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
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Sharpe Ratio
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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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Trade Logs
Visit the trade log store to download the trade logs associated with this and other published studies.
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USO short call 45 DTE Bundle$99.00
September 29, 2019 @ 4:43 pm
Hi Spintwig. Again thanks for all those backtests, they are really helpful. I have one question. Is it possible to see drawdown for those strategies? Volatility is one thing which helps a lot and sharpe gives you somehow a look at how this strategy performs, but max drawdown for short SPY put for example would be helpful. My line of thinking is that you can lever up short 10 or short 16 delta put and still get lower volatility and lower drawdown with returns similar to SPY.. But without knowing drawdown figures it is hard to judge just how much leverage would still be ok to stay for example below 30 % drawdown.. This number is mostly mention as max most investors can still stomach before panicking. Because there are A LOT of trend following strategies with great returns in the line of 20 % CAGR, but as soon as you see max DD of 70 % for a strategy like that, not a lot of people would stick with it starting with 1 MIO at worst possible time and still sticking with it on 300k and sitting on 700k loss..
thanks for reply
October 4, 2019 @ 2:30 am
Great question. That’s something I can certainly look into. No promises on timing… 🙂
October 6, 2019 @ 11:49 am
Confirmed: max drawdown % and drawdown days will be included in the leveraged studies. More info on leveraged studies to be announced in the coming days.