Sell daily SPX straddles?

[dorietrading]

So you are doing the very thing that you are arguing against here.

Riiiiiight. That makes sense.

Seriously, the amount of self-contradicting and pointless arguing here is laughable.

If you're happy with taking profits early please do. My backtests tell me otherwise...

 

[Matt_ORATS]

Hello Matt,

Is the first graph, 0dte straddle closed 14min before end of day, and second graph let to expiry? are they batested on 0dte entry?
I have started exploring your backtesting wheel and scanners yesterday.

What parameters can I set, to backtest a specific time of the day. Like your second graph of long straddle 0dte, last 14min of the day?
Is it all 0's for 0dte in the "days to expiration" parameter window?

Hi. No. In both graphs the straddles were held to expiration. The first was entered the day before expiration with 14 minutes to go in the trading day, so was held for 24 hours and 14 minutes. The second was entered 14 minutes before the close and expired.
Our backtester uses only options data from 14 minutes before the close and can exit at expiration or at 14 minutes with certain exit criteria, like profit or days left. We are not able to set the time to enter or exit other than 14 minutes or at expiration.

 

[ffs1001]

Hi. No. In both graphs the straddles were held to expiration. The first was entered the day before expiration with 14 minutes to go in the trading day, so was held for 24 hours and 14 minutes. The second was entered 14 minutes before the close and expired.
Our backtester uses only options data from 14 minutes before the close and can exit at expiration or at 14 minutes with certain exit criteria, like profit or days left. We are not able to set the time to enter or exit other than 14 minutes or at expiration.

Thanks Matt.

With respect, I would be sceptical of the results where a short straddle is sold 14 minutes before market close, expiring the next day, for the simple reason that (1) the trader is missing out on the quickening theta decay that occurs in the last hour, and (2) taking on the overnight gap risk.

IME, its better to open the trade early on in the day and close it before the end of the same day. Holding overnight is asking for trouble. The backtests will, quite rightly, produce negative figures for trades held overnight.

 

[dorietrading]

Thanks Matt.

With respect, I would be sceptical of the results where a short straddle is sold 14 minutes before market close, expiring the next day, for the simple reason that (1) the trader is missing out on the quickening theta decay that occurs in the last hour, and (2) taking on the overnight gap risk.

IME, its better to open the trade early on in the day and close it before the end of the same day. Holding overnight is asking for trouble. The backtests will, quite rightly, produce negative figures for trades held overnight.

So do it the other way around, buy the straddles just before the close in this environment

 

[ffs1001]

So do it the other way around, buy the straddles just before the close in this environment

Yes, that is a strategy - buying just before a days close for options expiring the next day.
I've never done that myself, but @Matt_ORATS is it possible for you to backtest the reverse of what you listed above pls? (ie. BUY the straddle 14 minutes before close).
Again, we need to be a little careful, because in reality we want the backtest to be able to give the returns if we close the straddle 30 minutes after market open the next day, but from the previous posts, the software doesn't allow for that, I believe.
Maybe a backtest that says "buy at 14 minutes before close on T-1 and close the next day when profit >= 10%" ?

 

[Matt_ORATS]

Yes, that is a strategy - buying just before a days close for options expiring the next day.
I've never done that myself, but @Matt_ORATS is it possible for you to backtest the reverse of what you listed above pls? (ie. BUY the straddle 14 minutes before close).
Again, we need to be a little careful, because in reality we want the backtest to be able to give the returns if we close the straddle 30 minutes after market open the next day, but from the previous posts, the software doesn't allow for that, I believe.
Maybe a backtest that says "buy at 14 minutes before close on T-1 and close the next day when profit >= 10%" ?

The long straddle in SPX is the inverse of the short straddle except slippage is considered.
15.77% vs -18.11%. The slippage is traveling 75% of the bid ask spread to trade. Trading mid would be 50%.

 

[TheDawn]

Who said anything about guarantees.
There are only two guarantees in life - death and taxes. Trading has no guarantees, just probabilities. You know that. You're a smart guy. So why the negativity?
You seem to be in a confrontational mindset of arguing just for the sake of arguing, so any kind of logical discussion is pointless.

You trade what suits your personality. You don't need to prove you are "right" or others are "wrong".

To each, his own.

I don't know why you are taking what I say so personal. I am just talking about an option strategy that I believe is not suitable for a high-volatility trading environment. The problem with shorting options let alone shorting TWO options is not the timing of the loss but the magnitude of the loss when it happens so whether you tp earlier for a small profit or holding it to the end doesn't make as much of a difference. If the volatility ends up being smaller than anticipated, you tp early for nothing and forwent a huge portion of the profit that could've been yours. If the volatility is higher than what you anticipated, no matter when you exit the position, you are screwed. So this is why I asked the question are you able to guarantee a profit for tp'ing early and guarantee a loss when holding until expiration? Because unless you can guarantee profit and losses at different times during the option-holding period, the timing of the exiting from the position really makes very little difference imo. Volatility can increase at any time and drop at any time so you either tp for nothing or too late. And the reason why is because the strategy itself is not suitable to the high-volaility environment to begin with. You are shorting volatility when volatility is high. It's like you are shorting a stock that's on a strong uptrend. Just like you would have a higher chance of being short-squeezed, you will have a higher chance of getting short-squeezed on volatility.

With the volatility so high, why not long in options instead? If the volatility is high enough for you to make profit even by tp'ing early with short options, you would be able to make a lot more being long.