In this post we’ll take a look at the backtest results of opening one VXX short call 45 DTE cash-secured position each trading day from June 1 2010 through January 30 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 or short VXX.
There are 10 backtests in this study evaluating over 21,800 VXX short call 45 DTE cash-secured trades.
Let’s dive in!
Systematically selling short calls on VXX was profitable across all strategies.
The 50D VXX short call strategies outperformed buy-and-hold SPY with regard to total return.
- Symbol: VXX
- Strategy: Short Call
- Days Till Expiration: 45 DTE +/- 17, closest to 45
- Start Date: 2010-06-01
- End Date: 2019-01-31
- Positions opened per trade: 1
- Entry Days: daily
- Entry Signal: N/A
- Timing: 3:46pm ET (EOD pricing)
- 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
- 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
Early management underperformed holding till expiration with regard to win rate.
The higher the delta the lower the win rate.
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
Profit Spent on Commission
5.75% – the average percent of profits spent on commission across all option strategies.
Early management underperformed holding till expiration with regard to total return.
The higher the delta the higher the total return.
All VXX short call option strategies were profitable.
Introduced by Barclays in 2009 and redeemed in 2019, VXX was a 10-year ETN, or Exchange Traded Note, that tracked the VIX Short-Term futures. As VXX was approaching the redemption date Barclays introduced a new 30-year iteration of the same product called VXXB on Jan 17 2018. On May 2 2019, Barclays renamed VXXB to VXX.
The 50D option strategies outperformed buy/hold SPY from a total return perspective. However, they had a wild ride along the way as demonstrated by the sharpe ratios.
Nevertheless, the swings of the short call option strategies pale in comparison to a “buy/hold” short position in VXX. Let’s see what that would look like.
Using iBorrowDesk (search VXXB – they haven’t updated the ticker yet), we see that from Sept 17, 2018 till Sept 12, 2019 Interactive Brokers charged anywhere between 1.4% and 6.7% to borrow this underlying. The majority of the time the borrow cost has hovered between 3.0% and 3.2%.
Let’s call it 4% and factor that into the equity curve. We end up with the following chart.
Not too shabby if you’re okay with multiple million-dollar swings.
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