Ron, thanks for taking the time to explain all of this to a beginner. Based on this information, I believe the mROI formula should be:

mROI = {[MM * IM(Start) + Premium(Start) - Premium(End) - Fees(End)] / [MM * IM(Start) + Fees(Start)]} ^ [365/12/(End-Start)] - 1

Where,

Start = date the position was acquired
End = date the position was liquidated
MM = margin multiple
IM = initial margin

Would you agree?

Note also that you can use the XIRR function in Excel to get the same result (see attached for example). Hopefully the cash flows are correct now.

On your example Excel formulas you used two different days held. One used 30 days the other 1/12 or 30.4 days.

I have used XIRR for years to compute my account's monthly and yearly ROI. I haven't used it for trades but you are correct it would be more accurate.

Here is what I use. B44 is End Date. B14 is Start Date

=(1+XIRR(G14:G44,B14:B44))^((B44-B14)/365)-1

This gives a result of 2.381% for your example on the Excel sheet.

My old formula =365/(B2-B1)/12*(B6-B8-B7-B9)/(B5*B4) result is 2.416%

Your new formula =+((B4*B5+B6-B8-B9)/(B4*B5+B7))^(365/12/B3)-1 result is 2.414%

It depends if you want to say that the day you acquire the option or the day you exit the option is a day held. I have been subtracting the start date from the end date so that only counts one of those. For example, March 31st minus March 1st is 30.

There are fees when you exit a position. NFA fees and maybe clearing fees. Broker Commission is either half in half out or all in. At Gain my entry and exit fees for ES are 0.56 per contract each way.

@ron99,

So I back-tested your strategy. I'm assuming you developed it by looking for a method that had a very high win rate over the back-testing period and that still produces good returns.

Here are the parameters I used:

# Short: -1
DTE Short: 100
Delta Short: -5
# Long: -2
DTE Long: 100
Delta Long: -1.5
MM: 6
Exit Point: 50%

Where MM is the margin multiple of the initial SPAN margin and exit point is what the premium needs to be as a percent of the original premium to close the position.

Here are some stats:


Where,

Win Rate = % of scenarios that have a positive return
E(mROI) = average mROI
Med(mROI) = median of mROI
E | Loss = average mROI for losses
E(DTS) = average days from acquisition to liquidation
Med(DTS) = average days from acquisition to liquidation
Max(%M) = Maximum margin requirement as % of margin held

The scenario that failed is shown below:
Date: 12/1/2015
Short(-1): ESH6,ESH6,1660
Long(2): ESH6,ESH6,1420
Total Margin: 1,597.20
mROI for this trade is -13.4%


Does this look right to you? Do you get the same results?

Thanks.

TFOpts, that is impressive work. Thank you.

I agree with all of your numbers for that trade except that trade didn't fail. You don't go on margin call until your maintenance margin is at 100+%. Initial margin is 110% of Maintenance Margin. So a margin call wouldn't happen until % of Margin was 110% or higher.

I have lots of questions if you don't mind.

Did you backtest for the years 2013 through 2017?
Yes
Starting a trade on each trading day of all those years?
Yes
How long did it take?
<5 min
How many lines in your database?
About 650k entries.
You downloaded each ES and EW3 option for each trading day for all of those years?
Does XLS-SPAN include EW3? I just took what came out of XLS-SPAN for an ES entry
What parameters to pick which options to download?
I limited my data to ES puts with DTE < 200 and Delta between -0.25 and -10 at least once in the life of an option.
Which database are you using?
Based on XLS-SPAN output
Where have you been all of these years?
I missed out on a lot of fun. It was very educational to read through this thread, thanks again for starting it and sharing!

Your work could be a huge help in finding strategies. Thank you again.
I've already found something that I'll share in a separate post.

As others have mentioned this is incredible work. I do have one question, rather than writing out the trade to margin call is you could run this test and find out what the percentage of winners and losers are if you have a 200% and a 300% of premium exit point? I'm looking forward to seeing the results.

/rsm005/

@ron99 Thanks for pointing out the difference between the initial and maintenance margin.

I have a question for you. Your exit point is documented as:

(CURRENT IM + (CURRENT PREMIUM$ - OPENING PREMIUM$)) > (MM * OPENING IM)

Does that mean you actually use the maintenance margin to exit instead?

(CURRENT MM + (CURRENT PREMIUM$ - OPENING PREMIUM$)) > (MM * OPENING IM)

In the example on post 6012 the exit point based on the original formula is reached on 02/11/2016 (see calcs below).

(1,216.6 + (575 - 130)) > (6 * 266.2) = 1,661.6 > 1,597.2

Have you revised your exit strategy to only exit when there's a margin call?

You downloaded each ES and EW3 option for each trading day for all of those years?
Does XLS-SPAN include EW3? I just took what came out of XLS-SPAN for an ES entry

@ron99 Thanks for pointing out the difference between the initial and maintenance margin.

I have a question for you. Your exit point is documented as:

(CURRENT IM + (CURRENT PREMIUM$ - OPENING PREMIUM$)) > (MM * OPENING IM)

Does that mean you actually use the maintenance margin to exit instead?

(CURRENT MM + (CURRENT PREMIUM$ - OPENING PREMIUM$)) > (MM * OPENING IM)

In the example on post 6012 the exit point based on the original formula is reached on 02/11/2016 (see calcs below).

(1,216.6 + (575 - 130)) > (6 * 266.2) = 1,661.6 > 1,597.2

Have you revised your exit strategy to only exit when there's a margin call?