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  1. Tomaz
    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.


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