Very nice study Ron.

One question comes to mind is that during this time, ES has generally been in an uptrend. Would it be possible, when you get some time, do a shorter study for a year when market has been a choppy market and also when the market is in some down trend.

Also, it would be beneficial, for a novice like me, if you could add a column, listing the value of the ES, so that we can quickly see, how low your strike prices are.

Thanks.

I have learnt a lot from this site... Thanks

I ran a real life backtest of my new ES strategy starting on 1/1/2013. I started with $100,000. I picked an ES put that was 90+ DTE and as close to 0.0300 delta. I exited the position the day the option settled at 50% or more drop from the price when acquired. The exit price was 50%+ of entry price. I used 7.50 per RT for costs. I entered the next option the day I exited the prior position using the settlement for that day.



In 2013 the strategy made 62.6%. In 2014 it made about 40.2% (it wasn't a full 12 months). In 2015 it was up 25.8% in 4 months.

For the entire time period, 28 months, it made 186.8% for 31 trades. 100% winners. The worst day the margin was using 88.2% of the account balance.

I never would have attempted this research without Dudetooth's SPAN excel spreadsheet.

Ron,

Can you explain this line in a little more detail?

The worst day the margin was using 88.2% of the account balance.

Was this the IM+MM when the position was opened or the peak margin required while the position was held? If the later wouldn't it force you to exit, absorb the loss, and skew the ROI?

Thanks,
/rsm005/

On 10/3/14 the study had a balance of $210,125. It acquired 101 Jan 15 1520 ES puts. I put the cost of $7.50 each at the beginning so taking $210,125 and subtracting (101 X 7.50) $757.50 = $209,367.50.

On 10/15/14 the price of the options changed from 3.55 to 12.90. A loss of $467.50 each or $47,217.50 for 101 of them.

That changed the account balance down to $209,367.50 - $47,217.50 = $162,150.

The IM for the position went from $694 each to $1,360 each. That's a $666 increase. For 101 of them times $1,360 the total IM required is $137,360.

On 10/15/14 the account balance was $162,150. The IM required was $137,360. The IM is 84.7% of the account balance (the Max % balance column on the table is off. The Lowest Buying Power column is correct. I will fix it.).

The position did not go on margin call. It did not hit the exit point of the strategy.

So the Drawdown (DD) of the account is 47217.5/209367.5=22.55%.

Great thread. Slight tangent. Anyone have thoughts if this method ron99 describes in last few pages would be viable using IB? I live in Canada so my choices of a broker who does futures is extremely limited.
I have just been reading some other threads of IB liquidating clients accounts when margin usage increased.

My intention would be to trade it as a covered spread that has similar spread ROI to the naked option. I assume that would help keep them from aggressive liquidation but I am not sure. I would do as ron99 suggested and keep 3x reserve in cash. I am just not sure if that is enough for IB

Feel free to PM me if this is 2 far off tangent of the thread

From what I have seen IB charges at least triple SPAN minimum margin. So your ROI will be much lower.

As long as IB keeps the same percentage above minimum, you should be OK as far as riding it out. If they increase their percentage above minimum during high volatility, then it would be ugly and costly.

Can you check to see if IB IM for spreads is the same amount above minimum as they charge for naked options? That would make a difference.

I did a quick test and the naked option was $2950 in margin. Creating an extremely wide vertical to get almost as much credit (1675/1400) was $900 in margin. TOS was showing $419 required

If they keep it at that number I am OK, but I am a bit worried they won't and there is no way to back test what IB will do in a volatility spike. So I may be looking for a more predictable broker. (any suggestions for a Canadian please PM)