VZ Short Put 45 DTE Cash-Secured Options Backtest
In this post we’ll take a look at the backtest results of opening one VZ short put 45 DTE cash-secured position each trading day from Jan 3 2007 through November 8 2019 and see if there are any discernible trends. We’ll also explore the profitable strategies to see if any outperform buy-and-hold VZ.
There are 10 backtests in this study evaluating over 30,600 VZ short put 45 DTE cash-secured trades.
Let’s dive in!
Contents
Summary
Systematically opening cash-secured short put positions on VZ was profitable for all option strategies.
All cash-secured VZ short put strategies underperformed buy-and-hold VZ with regard to total return.
Methodology
Strategy Details
- Symbol: VZ
- Strategy: Short Put
- Days Till Expiration: 45 DTE +/- 17, closest to 45
- Start Date: 2007-01-03
- End Date: 2019-11-08
- 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
- 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
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
Managing trades early lowered the win rate for all strategies.
The higher the delta lower the win rate. The 5D early-management strategy was an exception due to commission drag.
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 trade durations less than half the duration of hold-till-expiration.
Compound Annual Growth Rate
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Sharpe Ratio
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Profit Spent on Commission
16.33% – the blended average profit spent on commission across all option strategies.
Total P/L
Holding till expiration yielded greater total return vs early management.
The greater the delta the greater the total return.
Overall
All of the option strategies were profitable.
Discussion
VZ has a similar risk and return profile to T. This makes sense as they’re both large, established communications companies. At the time of writing they are the #1 and #2 largest wireless carrier by subscriber count, respectively, in the US.
When we compare the two, option strategy performance is nearly identical. The material difference between the two underlying is the buy-and-hold total return. VZ was the stronger performer.
Additional Resources
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Trade Logs
Visit the trade log store to download the trade logs associated with this and other published studies.
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VZ short put 45 DTE Bundle$99.00
January 2, 2020 @ 12:45 pm
Hi Spintwig. Great backtests. I keep coming to your webpage time and time again. And lastly I think that selling puts on companies like VZ and T could make a great strategy. For example selling 5 delta puts on VZ and levering up 6 times would give you more than 10 % CAGR with only 4.5 % yearly volatility and less than -4 % worst monthly return? This is crazy good result. One could lever this up 10 times and still get very respectable worst monthly and annual volatility with hedge fund year returns.. I hope I am reading this correctly?
What would be good to see on all you strategies is also drawdown. I know a lot of people, myself included pay attention to this. Because not a lot of people can stomach 40+ % drawdowns. Yeah on paper, but lets say you start trading and you immediately experience a large drawsdown. How many people will still keep selling puts when they started with 100.000 USD and are now down to 70.000 USD, 60.000 USD.. I guess many of us would stop at somewhere arround 10 % DD to max 20 % DD.. Even if you know system will get ahead some time, it is hard to imagine taking a few YEARS to recover from DD.. So a DD of any system is a very good measure of how the system acts. And the reason I am still drawn to selling puts instead of just going 100 % long, because of smaller drawdowns that 5-15 delta short puts offer. Yes you get less return in bull, but you also experience much less pain during bear markets. At the end you can finish at nearly the same point if you use some clever leverage from time to time, but with much smoother ride.
Another question, is CAGR calculated with costs included? Because a lot of short low delta strategies closed out early have significant costs which deduct 30 % of returns just by trading costs.
All in all I am really drawn to start selling low delta puts, levered up and spread on many blue chip names. Where you dont mind even if stock does fall to get 5 delta put assigned, because that would mean you got this stock reeeeally cheap. And you can then start selling calls on your entry point strike so that you eventually recover.. The problem though can be a nasty bear market when all 20 stocks you sell puts get down together, IV spikes like monster and you get margin call. That is why I think targeting 5 % to max 10 % yearly return is acceptable, everything else is just playing with fire. Because to get more you would have to use much higher leverage and what kills you at the end is not the price but volatility spike..
Please keep those posts coming. You have a really good website like no other out there. Useful, with backtests ,not like others who just keep pushing theory, which then never works in practice..
January 3, 2020 @ 12:30 am
Hey Tomaz! Welcome back —
Yes, you’re reading that correctly.
Sure thing! Today’s new T study, which happens to be the first leveraged study to date, includes max drawdown and drawdown days as stats, among other new metrics such as premium capture and average margin utilization. Enjoy 🙂
Yes, CAGR and total P/L have the commission drag factored in. You’re spot on, commissions do eat a high % of premium on these low notional, low vol underlying. My interpretation of the data is that it’s best to hold till expiration on these strategies.
You got it; more in the pipeline for sure.