VXX Short Vertical Call Spread 45 DTE Options Backtest
In this post we’ll take a look at the backtest results of opening one VXX short vertical call spread 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 and short VXX.
There are 20 backtests in this study evaluating over 42,100 VXX short vertical call spread trades.
Let’s dive in!
Contents
Summary
Systematically opening short vertical call spread positions on VXX was profitable for 16 of the 20 strategies.
None of the VXX short vertical put strategies outperformed buy-and-hold SPY with regard to total return.
Methodology
Strategy Details
- Symbol: VXX
- Strategy: Short Vertical Call Spread
- 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
- 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
- 10D short / 5D long
- 16D short / 5D long
- 16D short / 10D long
- 30D short / 5D long
- 30D short / 10D long
- 30D short / 16D long
- 50D short / 5D long
- 50D short / 10D long
- 50D short / 16D long
- 50D short / 30D long
- Trade Exit
- 50% max profit or 21 DTE, whichever occurs first
- Hold till expiration
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.
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.
Compound Annual Growth Rate
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Sharpe Ratio
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Profit Spent on Commission
48.08% – the average percent of profits spent on commission across all profitable option strategies.
Total P/L
Early management underperformed holding till expiration with regard to total return.
Overall
16 of the 20 VXX short vertical call spread option strategies were 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.
Additional Resources
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Consultations
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December 11, 2019 @ 5:59 am
Hi, In the Total P/L% when it say, for example in the 50D/5D
176.58%
that mean a total +return of 176.58% from June 1, 2010 to Jan 30,2019 for 1 call spread (or $4500 of risk)?
(annually 12% approx)
December 11, 2019 @ 9:15 pm
Correct. Keep in mind this strategy assumes a new position is opened each trading day. Not to be confused with a single position that is continuously rolled (or closed and reopened at expiration).
December 12, 2019 @ 3:48 am
a new position is opened each trading day? so in 45 days you have 45 VXX call spreads open?
December 12, 2019 @ 9:46 am
If holding each trade till expiration, yes. Closer to 30 when factoring in weekends (non-trading days).
The results depicted are normalized to account for “average daily returns.” In other words, pretend an ETF sponsor was opening a position each trading day behind the scenes and you invested $100 in that ETF. The 176% return would be on the $100 you invested.
Because options are discrete (one can’t invest in half a vertical at a given delta), smaller portfolios may experience a greater deviation from what’s depicted vs larger portfolios.
December 12, 2019 @ 10:10 am
Thank you very much!
It will be possible to make a back-testing of a long VXX put?
(with 60 to 90 DTE)?
December 17, 2019 @ 9:13 pm
You’re welcome! Yes, it’s possible 🙂 I can add that to the roadmap but it’ll be a little bit till that particular study is performed and published.