Here's an interesting observation that I think myrrdin has made before. There's less volatility in option value the closer you are to being ITM (higher initial delta).

Here are results using deltas of -5 and -1.5 (similar results as Ron's).


If we go further OTM with deltas of -3 and -0.5 the loss is greater.


If we go closer ITM with deltas of -7 and -2.5 there's actually a gain because the very far OTM options increase in value faster with the vol spike. You actually go on margin call at a profit

This is a comparison of two strategies on ES.

1. The best strategy proposed so far for relatively safe returns is 1 short ES put at -5 delta and 2 long ES puts at -1.5 delta with 6 x IM and DTE around 100 days, exiting when premium = 50% of initial premium. This would not have required a margin call from 2013-2016 with median mROI of 2.8%. Many thanks to Ron for sharing this with us.
   
2. Based on recent back-testing I would like to propose another strategy that has a similar level of risk but has higher returns on average. 2 short ES puts at -3 delta and 3 long ES puts at -1 delta with 4 x IM and DTE around 100 days, exiting when premium = 50% of initial premium. This strategy also would not have required a margin call from 2013-2016 and the median mROI is 3.4%.

Here's a comparison of some stats between the two strategies.


And here's the how close the margin gets to a margin call (100% means you get the call) by date for #1.


And for #2.


Note that #2 has more peaks but they aren't as high as #1. The protection of the 3 further OTM puts seems to balance out the risk of selling 2 puts nicely. I believe this balance is mainly from a volatility offset (the puts are closer together in strike) because there's more delta exposure on #2 (delta = 3) compared to #1 (delta = 2).

It would be great if someone could validate my work.

I've been looking at this post for quite some time and the first graphic makes a rather interesting observation. If you set the exit point to 60% of margin with a 6x IM you'd only be forced out twice. Perhaps that's a better way to exiting a position that can also survive the 2008 drop.

Ron,

Can you compare the margin numbers? I get different results for % of IM. I have your initial margin as 1,148. In December the % of margin used is calculated as [1,361 + (610 - 98)] / 1,148 = 163%. The 1,361 is the Maintenance margin (1701 / 1.25).

My mistake is that my header name "Account Balance for IM" is wrong. It should be IM% of Account Balance.

And then I should further change it to MM% of 6xIM. Then 100+% would be margin call.

So the formula should be (Current IM / 1.1) / (Beginning IM * Excess Factor + Net Position P/L for that day)

Maintenance margin = Initial margin / 1.1. Not sure why you used 1.25.

Ron, 1.25 was the initial maintenance ratio at the time; 1.1 is more recent.

Oh, when did it change?

Also, @ron99 do you recall that post you put up some time ago about how to use your SPAN spreadsheet? Can you post a link to it?

Thanks,
/rsm005/

I'm not sure which spreadsheet you are referring to. Is it XLS-SPAN or something else?