how to backtest this option idea?

[kalapur73]

thanks for those results!

I wonder how much the 4% down day on May 18,2022 skewed the results.

also, it looks like the idea did quite bad in 2022 when the market was trending down, and quite good in 2023 when the market was chopping higher.

Regarding May18: It is just a normal day in the strategy.
As I see Jan 24 is more problematic: 76k down

Try to click the "Log returns" switch and you will see the actual PnL numbers.

I made some further experiments by adding SL as a function of credit received:
- 2x Credit: https://portal.deltaray.io/backtests/b254e7c8-5299-43c5-ab8e-d3825acb8f55
- 3x Credit: https://portal.deltaray.io/backtests/e8704a43-2b1e-48f1-9509-345488a2c49e

As these results are also disappointing I made a final try with an Iron Condor, entered similarly.
Wings are 25 points wide, shorts being at 5 delta. SL is Credit received on put side * 3.

The run: https://portal.deltaray.io/backtests/7c80b576-0a12-40b2-aa12-48b8e53295e7

This looks much better:
- CAGR: 40%
- Max DD: -19.82 %

I'm afraid trading this needs automation or you need to sit continously on front of the computer.

@elite1974: Did you managed to automate similar strategies?

 

[kalapur73]

Just took a look at mesosim website.

Did you run the backtest on the free basic plan or on one of the premium plan?

I subscribed a year ago when they had only one plan, which is now the premium one.

I think the above tests can be re-run in all the plans.
Their premium contains VIX and RUT and something else which isn't used in the above tests.

 

[elite1974]

I sit in front of the computer all day
nothing is automated

 

[kalapur73]

I sit in front of the computer all day
nothing is automated

I see. I'm also in front, but unfortunately I can't (yet) dedicated my full time to trading.

Did you try to enter less times a day, (like 3), trading similar 0DTE strategies?

 

[elite1974]

I currently just enter straddles at my discretion, when I think it is a sideways day. (mostly selling strangles)

I was just wondering what would the results be if it was done every day for a long time.

 

[newwurldmn]

Don’t trade strategies where you will drop a years pnl every 14 months.

 

[Windlesham1]

I currently just enter straddles at my discretion, when I think it is a sideways day. (mostly selling strangles)

I was just wondering what would the results be if it was done every day for a long time.

Good luck- I have a book somewhere and 17 traders ALL ended up trading discretionally and doing well.

 

[status1]

I created this backtest in MesoSim, with one modification (12 vs 13 trades per day):
- ATM Straddle opened on SPX every 30 min, starting at 10AM
- 12 trades per day run into expiration
- Backtest period: 2022. 01. 01. - 2023. 05. 01.
- Fills: At Mid Price (no slippage)
- Commission: 1.5 per contract
- Initial allocation (cash): $100k

Result:
- CAGR: -1.18%
- MaxDD: -392%

I wouldn't trade this.. Not even with SL as the drawdowns are so huge.

You can check the results and the rules in detail here:
https://portal.deltaray.io/backtests/4f90f0a8-1ff0-4103-9021-645fb1d4cfc0

I'll make some expirements with ICs, maybe they perform better.

 

[status1]

Not only that but correct me if I am wrong but wouldn't you need more than 1 million dollars in margin to even think about trading this strategy ?

 

[elite1974]

Not only that but correct me if I am wrong but wouldn't you need more than 1 million dollars in margin to even think about trading this strategy ?

each naked straddle uses approximately 260k of day trading buying power.

so 12 straddles is about 3.1M of DTBP

DTBP is 4x, so need ~780k of margin.