In this post we’ll take a look at the backtest results of opening one USO short put 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 30,100 USO short put trades.
Let’s dive in!
Systematically selling short puts on USO is unprofitable.
All USO short put strategies outperformed buy-and-hold USO with reagrd to total return.
- Symbol: USO
- Strategy: Short Put
- 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: 3:46pm ET
- Strike Selection
- 5 delta +/- 4 delta, closest to 5
- 10 delta +/- 4 delta, closest to 10
- 16 delta +/- 5 delta, closest to 16
- 30 delta +/- 6 delta, closest to 30
- 50 delta +/- 7 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
- 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
- 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
Managing trades early lowered the win rate.
The higher the delta the trade the lower the win rate.
The 5D early-management win rates were reduced due to trading costs. Trades that were closed at profit targets but became unprofitable due to commissions are considered non-winners for the purposes of this calculation.
Worst Monthly Return
Average P/L Per Day
Average Trade Duration
Since the underlying was consistently falling, there were limited opportunities to lock in gains at 50% max profit. Trades were frequently closed at the 21 DTE target.
Compound Annual Growth Rate
Profit Spent on Commission
None of the strategies were profitable before commissions.
Lower-delta strategies experienced smaller losses vs higher-delta strategies or buy-and-hold.
None of the option strategies were profitable.
USO experiences a spike up in the first half of 2008 followed by two notable drops – one that occurs between 2008 / 2009 and one that occurs between 2014 / 2015. Aside from these events USO remains relatively flat.
This return profile allows us to see the basic mechanics of the short put strategy at work: wins are capped and losses are buffered by the premium received.
Private, Custom Backtests
Visit the trade log store to download the data used in this and other backtests.
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