VXX Short Call 45 DTE Cash-Secured Options Backtest

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!
Contents
Prior Research
Basics
How to Trade Options Efficiently Mini-Series
Backtesting Concepts
Building a Research Framework
AAPL – Apple Inc.
- AAPL Short Put 0 DTE Cash-Secured
- AAPL Short Put 45 DTE Cash-Secured
- AAPL Short Put 45 DTE Leveraged
- AAPL Long Day Trade
AMZN – Amazon.com, Inc.
BTC – Bitcoin
C – Citigroup Inc.
DIA – SPDR Dow Jones Industrial Average
- DIA Short Put 7 DTE Cash-Secured (coming soon)
- DIA Short Put 7 DTE Leveraged (coming soon)
- DIA Short Put 45 DTE Cash-Secured (coming soon)
- DIA Short Put 45 DTE Leveraged (coming soon)
DIS – Walt Disney Co
EEM – MSCI Emerging Markets Index
GE – General Electric Company
GLD – SPDR Gold Trust
IWM – Russel 2000 Index
- IWM Short Put 7 DTE Cash-Secured
- IWM Short Put 7 DTE Leveraged
- IWM Short Put 45 DTE Cash-Secured
- IWM Short Put 45 DTE Leveraged
- IWM Long Day Trade
MU – Micron Technology, Inc.
QQQ – Nasdaq 100 Index
- QQQ Short Put 7 DTE Cash-Secured
- QQQ Short Put 7 DTE Leveraged
- QQQ Short Put 45 DTE Cash-Secured
- QQQ Short Put 45 DTE Leveraged
SLV – iShares Silver Trust
- SLV Short Put 45 DTE Cash-Secured
- SLV Short Put 45 DTE Leveraged (coming soon)
SPY – S&P 500 Index
- SPY Long Put 45 DTE Optimal Hedging
- SPY Long Call 45 DTE
- SPY Long Call 730 DTE LEAPS
- SPY Short Put 0 DTE Cash-Secured
- SPY Short Put 0 DTE Leveraged
- SPY Short Put 0, 7, 45 DTE Leveraged Comparison
- SPY Short Put 2-3 DTE M,W,F “BigERN Strategy” (guest post)
- SPY Short Put 7 DTE Cash-Secured (coming soon)
- SPY Short Put 7 DTE Leveraged
- SPY Short Put 45 DTE Cash-Secured
- SPY Short Put 45 DTE Leveraged
- SPY Short Put 45 DTE Leveraged binned by IVR (coming soon)
- SPY Short Vertical Put Spread 0 DTE (coming soon)
- SPY Short Vertical Put Spread 45 DTE
- SPY Short Call 0 DTE Cash-Secured
- SPY Short Call 0 DTE Leveraged
- SPY Short Call 45 DTE Cash-Secured
- SPY Short Call 45 DTE Leveraged
- SPY Short Straddle 45 DTE
- SPY Short Strangle 45 DTE
- SPY Short Iron Condor 45 DTE
- SPY Wheel 45DTE
- Making Money in Your Sleep: A Look at Overnight Returns
- A Bad Case of the Fridays: A Look at Daily Market Returns
T – AT&T Inc.
TLT – Barclays 20+ Yr Treasury Bond
TSLA – Tesla, Inc.
USO – United States Oil Fund
VXX – S&P 500 VIX Short-Term Futures
- VXX Short Call 45 DTE Cash-Secured
- VXX Short Call 45 DTE Leveraged
- VXX Short Vertical Call Spread 45 DTE
VZ – Verizon Communications Inc.
Other
Methodology
Core Strategy
- Symbol VXX
- Strategy Short Call
- Start Date 2010-06-01
- End Date 2019-01-31
- Positions opened 1
- Entry Days every trading day
- 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
Days Till Expiration
Some studies look at ultra-short-duration option strategies while others explore longer durations. The nuances and range for each approach are summarized below.
0 DTE Strategies
Between 0 and 3, closest to 0.
The range is up to 3 days from expiration for two reasons: to allow opening positions on Friday that have a Monday expiration and to allow more opportunities for occurrences of strategies focused in the 10-40 delta range. As expiration nears, it becomes increasingly difficult to open positions in this range.
This visual from Options Playbook does a great job illustrating the concept. Notice how at 1 DTE delta jumps from .50 to .10 with a single dollar change in the underlying. Compare this to the 60 DTE scenario where the change in delta for a $1 change in underlying is much smaller. By allowing positions to be opened as far out as 3 DTE, delta sensitivity to $1 differences in strikes becomes muted.

7 DTE Strategies
Between 3 and 11, closest to 7.
The range is 4 days either side of 7 to ensure a position can be opened each trading day while remaining true to the duration target. For example, opening a position Wednesday will have either a 2 DTE horizon (next Friday) or a 9-DTE horizon (the Friday after next). In this scenario the 9-DTE position would be selected.
45 DTE Strategies
Between 28 and 62, closest to 45.
The range is 17 days either side of 45 to account for quadruple witching. As the end of each calendar quarter approaches, namely during the last 7-10 days of Mar, Jun, Sep and Dec, the expiration dates of option contracts widen significantly.
730 DTE Strategies (LEAPS)
Between 550 and 910, closest to 730.
The range is 180 days either side of 730 to account for underlying that have LEAPS expirations in 6-month increments.
Calculating Returns
Returns are calculated daily using notional returns. The change in daily values of the option is divided by the stock price at the time of order entry.
The formula for daily return is:
option profit / opening stock price
.
For example, suppose we opened a XYZ short put at $1.10 on 1/3/2007 with a stock price of $50:
- On 1/4/2007, our option increased to $1.50. The notional daily return calculation would be ( $1.10 – $1.50 ) / $50 = -.008 which is -.8% daily return on 1/4/2007
- On 1/5/2007 our option decreased to $0.80. The notional daily return calculation would be ( $1.10 – $0.80 ) / $50 = .006 which is .6% daily return on 1/5/2007
By using notional returns on daily stock values when calculating returns we isolate the performance of the option strategy from the effects of leverage. This allows us to identify strategy performance in a non-margin context such as in a US-based retirement account.
By measuring strategy performance as a daily percentage change we abstract the strategy performance from absolute dollar gain/loss to a relative percentage value. This is a fancy way of saying the strategy becomes capital agnostic. In other words, think of an ETF that executes the respective option strategy. We can allocate $100 to the “option ETF” and $100 to the underlying and have an apples-to-apples, dollar-for-dollar comparison.
Monthly and Annual Returns
To identify the monthly and/or annual returns for an option strategy, the respective daily returns are summed.
Graphing Underlying and Option Curves
The underlying position derives its monthly performance values from Portfolio Visualizer. Portfolio returns are calculated in a compound fashion using this monthly data.
Option strategies derive monthly performance values from the backtesting tool by summing the respective daily returns. Portfolio returns are calculated using the following formula:
( backtest starting capital * monthly return ) + portfolio balance

Margin
Margin requirements and margin calls are assumed to always be satisfied and never occur, respectively.
In practice the option strategy may experience varied performance, particularly during high-volatility periods, than what’s depicted. Margin requirements may prevent the portfolio from sustaining the number of concurrent open positions the strategy demands.
Moneyness
Positions that become ITM during the life of the trade are assumed to never experience early assignment.
In practice early assignment may impact performance positively (assigned then position experiences greater losses) or negatively (assigned then position recovers).
Commission
The following commission structure is used throughout the backtest:
- 1 USD, all in, per contract:
- to open
- to close early
- expired ITM
- 0 USD, all in, per contract expired OTM / worthless
While these costs are competitive at the time of writing, trade commissions were significantly more expensive in the late 2000s and early 2010s.
In practice strategy performance may be lower than what’s depicted due to elevated trading fees in the earlier years of the backtest.
Slippage
Slippage is factored into all trade execution prices accordingly:
- Buy: Bid + (Ask – Bid) * slippage%
- Sell: Ask – (Ask – Bid) * slippage%
The following table outlines the slippage values used and example calculations:

- A slippage % of .50 = midpoint
- A slippage % of 1.00 = market maker’s price
Inflation
All values depicted are in nominal dollars. In other words, values shown are not adjusted for inflation.
In practice this may influence calculations that are anchored to a particular value in time such as the last “peak” when calculating drawdown days.
Calculating Strategy Statistics
Automated backtesters are generally great tools for generating trade logs but dismal tools to generate statistics. Therefore, I build all strategy performance statistics directly from the trade logs. Below is a breakdown on how I calculate each stat and the associated formula behind the calculation.
Win Rate
Trades that were closed at management targets (profit, DTE) as winners but became unprofitable due to commissions are considered non-winning trades. This phenomenon is typically observed when managing 2.5D and 5D trades early.
( count of trades with P/L > 0 ) / count of all trades
Annual Volatility
The standard deviation of all the monthly returns are calculated then multiplied the by the square root of 12.
STDEV.S(monthly return values) * SQRT(12)
Worst Monthly Return
Identify the smallest value among the monthly returns:
MIN(monthly return values)
Average P/L per Day
This measures changes in capital efficiency due to early management.
( average P/L per trade ) / average trade duration
Average Trade Duration
This measures the average number of days each position remains open, rounded to the nearest whole day.
ROUND ( AVERAGE ( trade duration values ) , 0 )
Compound Annual Growth Rate
This measures the compounded annual rate of return, sometimes referred to as the geometric return. The following formula is used:

Sharpe Ratio
Total P/L alone is not enough to determine whether a strategy outperforms. To get the complete picture, volatility must be taken into account. By dividing the compound annual growth rate by the volatility we identify the risk-adjusted return, known as the Sharpe ratio.
strategy CAGR / strategy volatility
Profit Spent on Commission
The following formula is used to calculate the percent of profits spent on commissions:

If a strategy is depicted as having percent greater than 100, this means the strategy is unprofitable due to commissions but would have been profitable if trades were commission free throughout the duration of the backtest.
If a strategy is depicted as “unprofitable” this means the strategy lost money even if trades were commission free throughout the duration of the backtest.
Total P/L
How much money is in the portfolio after the study? This stat answers that question and depicts it as a %
( portfolio end value / portfolio start value ) - 1
Scope
This study seeks to measure the performance of opening short call positions and will interpret the results from the lens of income generation relative to buy-and-hold SPY or short VXX.
The utility of the short call strategy as a portfolio hedging tool or other use will not be discussed and is out of scope.
Results
Win Rate


Managing trades early lowered the win rate.
The riskier the trade the lower the win rate.
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


Trades generally reached 50% max profit after only a third of the option duration. This means after 13 days the daily P/L is, on average, cut in half.
Compound Annual Growth Rate
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Sharpe Ratio
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Profit Spent on Commission


Compared to option strategies on other underlying, profits spent on commission for VXX calls is quite modest. 5.75% is the blended rate.
Total P/L


Ignoring the commission crushed 5D strategy, managing trades early lowered total P/L anywhere between 15-38%.
Overall

Every VXX short call option strategy was eventually profitable.
Discussion
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.
There are a handful of option strategies on VXX that outperformed buy/hold SPY from a total return perspective but had a wild ride along the way. This volatility is observed in the Sharpe ratio calculations.
However, 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 from Sept 17, 2018 till Sept 12, 2019 that Interactive Brokers has 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.
Summary
Systematically selling short calls on VXX is profitable.
Some VXX short call strategies outperformed buy-and-hold SPY albeit with a lower Sharpe ratio.
The 5D @ hold-till-expiration VXX short call strategy had the greatest risk-adjusted return.
Thanks for reading 🙂
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Thoughts? Feedback? Dedications? Shoutouts? Leave a message in the comments below!
September 13, 2019 @ 9:00 am
Great test. Looks like commissions really eat into the 5 delta. For people trading on a commission free broker that may swing the sharpe ratio more in their favor over SPY. Also seems like this would be a good one for a short call spread to help with some of those cases where VXX shoots up really quickly.
September 13, 2019 @ 12:12 pm
Interesting, is this the first backtest that actually beats SPY?
Remind me (I couldn’t find it in the methodology) – what do “50D-50”, “30D-50”, etc mean? Is that a 5D spread?
September 13, 2019 @ 12:54 pm
It is, but not on a risk-adjusted basis. EEM was the first I observed that had both a risk-adjusted and total return outperformance relative to the underlying.
50D-50 is a 50D position managed at 50% max profit or 21 DTE. 30D-50 is a 30D position managed at 50% max profit or 21 DTE. Not to be confused with 50D-30D-50, which is a 50D 30D spread (the study name will indicate whether it’s a credit or debit) managed at 50% max profit or 21 DTE.
I’ll update the methodology section to include clarity on the naming convention. Appreciate the feedback.
September 13, 2019 @ 12:55 pm
VXX short call spread is coming next week – stay tuned 🙂
September 14, 2019 @ 3:10 am
I wouldn’t go on with a short call – it’s the way optionsellers.com ruined their depot…
There is also a danger with the VXX for a Explosion.
So i’m looking forward for the short call spread
October 20, 2019 @ 4:57 am
Thanks for the back-testing.
1)How much was the max. loss during the trade? you wrote that
“the worst monthly return for example for 30D was -44.6%”
2) that means that if I sold a 30D call on VXX for $100 the max. loss was -$144.60?
3) During the month the 30D call for example didn’t show bigger loses?
4) I didn’t find the “VXX short call spread ” back-testing, can you please write the link?
October 20, 2019 @ 7:03 am
You’re welcome; thanks for stopping by!
1) ORATS reports that the max drawdown on the cash-secured VXX 30D hold-till-expiration strategy is 47.48%.
2) That means if you had $100 committed to the 30D strategy (think of it as investing $100 in an ETF that implements the 30D strategy behind the scenes) during the worst month, the $100 would become $55.4 – a loss of 44.6%.
3) That’s a good question. The cash-secured stats provided by ORATS reports as a monthly rollup. It’s quite possible a greater loss occurred during the “worst month”, or even a different month, but some winners may have occurred that brought the returns up from the lowest of lows. If we evaluate this as a leveraged strategy using the Options Backtest Builder – I’ve yet to do this on this particular study – we’ll see the exact day in which the bottom of the max draw down occurs.
4) Here you go: https://spintwig.com/vxx-short-vertical-call-spread-options-backtest-results/
January 29, 2020 @ 12:51 pm
What do you mean with ” cash secured call”?
for example if VXX is trading at $13
this study sell 10 calls $13 in a $13,000 account?
January 29, 2020 @ 3:49 pm
Essentially, yes.
January 29, 2020 @ 3:55 pm
Thanks! And during this study never received a margin call (or the balance went negative)?
January 29, 2020 @ 4:45 pm
Welcome!
I can’t speak to whether this would have generated a margin call in practice. That’s unfortunately something that can’t be explored with a backtest (particularly, buying power expansion). Notably, the account didn’t blow up despite the multi million dollar sings.