Ron,

Sorry about my last message. I wanted to run a few tests to make sure I wasn't crazy. I'm trying to get the numbers for the largest/longest drop I could find during the tail end of this year. I tried to run the numbers against the following

but got nothing. All the parameters in the Tracker page, histdata, and histpivot were empty. To make sure I was doing it right I re-ran the numbers using ESZ5 and everything seemed to work.

I checked the data files and they all exist, so is there something I'm missing? My goal here is 2 fold

1. Determine a spread I'm comfortable with
2. Determine if there's a mechanical exit point along with the IM exit.

Thanks,
/rsm005/

Here is a long term study using one short 5.00 delta and two long 1.50 delta options same month as the short and exiting at 50% drop.



It just missed hitting the 50% drop and exiting on 8/17/15 by 0.05. So 8/24/15 happened when the options were down to 52 DTE. They just went on margin call by 6%.

But even with that losing day the spreads are up 83.8% for the 2 1/2 year study. They are only down 6.7% for 2015. That is far better than the naked options.

This posting is the test that I really wanted to run. The test starts on 11/04, near a peak of the current recovery, and then tracks what happens to a position 107 days out as the subsequent ups, downs, and interest rate hike come in. I compared it to a standard trade that was practiced by Ron and myself of a 3 delta.

As you can see the spread doesn't give you as good a return as the standard 3 delta trade but it's close, about 10% in some cases. For me this confirms a trading rule

- As the position is approaching 30-40 days then take whatever profit you can get, bail, and put on another position.

Second, time didn't seem to make as big an impact as I thought it would from a P/L point of view. I'm assuming the IM is higher for the spread because the short has a higher delta...even with the longs...but I'm not 100% sure.

If there's something else a more trained observer can take from this please feel free to share.

Thanks, Ron for the great work! What is max draw down for each trade until 8/25/15?
Can we have strategy to exit when draw down hits, say, 30 or 40%? In this case, we may exit few times but avoid hitting margin call.
Regards,
Dilip

This posting is the test that I really wanted to run. The test starts on 11/04, near a peak of the current recovery, and then tracks what happens to a position 107 days out as the subsequent ups, downs, and interest rate hike come in. I compared it to a standard trade that was practiced by Ron and myself of a 3 delta.


As you can see the spread doesn't give you as good a return as the standard 3 delta trade but it's close, about 10% in some cases. For me this confirms a trading rule

- As the position is approaching 30-40 days then take whatever profit you can get, bail, and put on another position.

Second, time didn't seem to make as big an impact as I thought it would from a P/L point of view. I'm assuming the IM is higher for the spread because the short has a higher delta...even with the longs...but I'm not 100% sure.

If there's something else a more trained observer can take from this please feel free to share.

Your assumption is correct.

What contracts are in this table? It isn't the ones listed at the top of the table.
EDIT I found that they are Feb contracts not March contracts.

Your deltas to start for the spread were 4.97 for the short and 1.10 for each of the longs. That is too low a delta for the longs to give much coverage after several days. They are too far OTM.

If you use ESg6p1685 for the short with a delta of 5.97 and ESg6p1410 with a delta of 1.49 each for the longs that would give you better coverage and a better ROI.

Ya..I'm noticing that very slight changes in delta have pretty dramatic impacts on performance. I have that posting of yours, #5021 permanently linked. I just keep running backtests using those numbers to check the results during various market phases. I used to have a spreadsheet that calculated a very accurate delta but can't find it anymore. TOS doesn't come close, their delta calculations stop at 1 decimal place...say 1.5, and OX is just as bad. I'll have to keep digging. If you have an addendum to this spreadsheet that calculates delta would you be comfortable sharing?

Thanks,
/rsm005/