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!
- Symbol VXX
- Strategy Short Vertical Call Spread
- Start Date 2010-06-01
- End Date 2019-01-31
- Positions opened 1
- Entry Days every trading day
- 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
- 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)
- 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
This study seeks to measure the performance of opening short vertical call spread 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 vertical call spread strategy as a portfolio hedging tool or other use will not be discussed and is out of scope.
Managing trades early lowered the win rate across the board.
Worst Monthly Return
Average P/L Per Day
Average Trade Duration
Trades generally reached 50% max profit after only 37% of the option duration. This means after 15 days the daily P/L is, on average, cut in half.
Compound Annual Growth Rate
Profit Spent on Commission
Profits spent on commission can vary from as low as 2.29% to rendering entire strategies unprofitable. Choose wisely.
Managing trades early lowered total P/L across the board.
Profitability of VXX short vertical call spread option strategies is mixed. None outperform buy-and-hold SPY.
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 is one strategy that came close to SPY outperformance from a total-return perspective – the 50D/5D spread held till expiration. However, despite a close performance the Sharpe ratio was less than one third that of SPY during the same time frame.
Systematically opening short vertical call spread positions on VXX is may or may not be profitable. It depends on the strategy selected.
The 50D/30D @ hold-till-expiration VXX short vertical call spread strategy had the greatest risk-adjusted return.
Thanks for reading 🙂
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