SPX Historical Spread Plays

Quote from Wayne Gibbous:

Thanks for bringing this up. The martingale component concerns me a little. We all know how quickly these can get out of hand. So a rough calc shows winners are approx: 63 X 2.5 = 157.5 pts. And losers: 37 X -5 = -185. I know that losers aren't always 5 pts, but winners aren't always 2.5 pts either.


Looking quickly at monthly SPX changes, there are a few four-month periods of losses. So you do up to a 4 stage martingale if you hit a losing month?

Thanks for the input.
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Actually the losers are 2.5 as those are 5-point spreads so your max loss is 5 pts minus premium received.
 
Hi Wayne,

I was wondering when someone would ask about the martingale, lol. Mine is what I call a modified martingale. Here's what I do. Start with one unit. After a loss, increase to two units. Stay at two units until you have a net two winners, they go back to one unit. If you have a net two losers at the two unit level, increase to three units. Again, stay at the three unit level until you have a net two winners. Then drop back to two units and proceed, as above. You would increase to four units if you had a net two unit losses at the three unit level, but that has never happened in ten years. Sounds a bit complicated, but it's really quite simple in actual practice. It's been a big winner.
 
Quote from optionsmaven:

Hi Wayne,

I was wondering when someone would ask about the martingale, lol. Mine is what I call a modified martingale. Here's what I do. Start with one unit. After a loss, increase to two units. Stay at two units until you have a net two winners, they go back to one unit. If you have a net two losers at the two unit level, increase to three units. Again, stay at the three unit level until you have a net two winners. Then drop back to two units and proceed, as above. You would increase to four units if you had a net two unit losses at the three unit level, but that has never happened in ten years. Sounds a bit complicated, but it's really quite simple in actual practice. It's been a big winner.
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Thanks. Yeah I'm certainly not against increasing size (carefully). It's been good to me too. A "standard" martingale double-down will eventually bite you.

In the markets, unlike Vegas, oversold/overbought conditions create opportunities. Yes, you are "due" for a winner after so many losers. But you still hafta be real real careful... :D
 
Quote from Wayne Gibbous:

Oops. Yeah, haven't had my coffee yet... :p
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No worries. I already had two, but I'm in Europe so it's the end of the day for me. :)
 
Quote from MTE:

On a similar note to spindr0, I have backtested a pattern that worked for over 30 years, then came 2009 and as of now the strategy is around break even (incl. all the costs) after two years.
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On a similar note to me, I real time traded a system in 2008 and 2009 that yielded returns that anyone here would be thrilled to achieve but as of today has yielded only 8% this year (real time). Time to look for a new pattern?
:confused:
 
Quote from optionsmaven:

Mine is what I call a modified martingale. Here's what I do. Start with one unit. After a loss, increase to two units. Stay at two units until you have a net two winners, they go back to one unit. If you have a net two losers at the two unit level, increase to three units. Again, stay at the three unit level until you have a net two winners. Then drop back to two units and proceed, as above. You would increase to four units if you had a net two unit losses at the three unit level, but that has never happened in ten years. Sounds a bit complicated, but it's really quite simple in actual practice. It's been a big winner.
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I've never utilized a Martingale but if I was faced with doubling down (or some variation) after a losing month or two, I'd slightly ratio the long side, willing to take a little longer to breakeven to the upside but assuring me of lesser loss to the downside if a buzzed by a multi-month downtrend ala 2008. Size does matter!
 
Quote from spindr0:

On a similar note to me, I real time traded a system in 2008 and 2009 that yielded returns that anyone here would be thrilled to achieve but as of today has yielded only 8% this year (real time). Time to look for a new pattern?
:confused:
More...

By the way, the strategy that I mentioned was also traded in real time with real money over the last two years, not backtested or paper traded.
 
For you data mining geeks and backtesters, here are expiration-to-expiration changes for SPY. Changes greater than +-5% are highlighted:



Expiration to expiration changes (at Close) for SPY

Start 20010216 Price: 130.40

20010316, 115.08, %Chg: -11.75

20010420, 124.50, %Chg: 8.19

20010518, 129.74, %Chg: 4.21

20010615, 121.85, %Chg: -6.08

20010720, 121.34, %Chg: -0.42

20010817, 116.75, %Chg: -3.78

20010921, 97.28, %Chg: -16.68

20011019, 107.35, %Chg: 10.35

20011116, 114.36, %Chg: 6.53

20011221, 114.95, %Chg: 0.52

20020118, 113.15, %Chg: -1.57

20020215, 110.89, %Chg: -2.00

20020315, 116.65, %Chg: 5.19

20020419, 112.88, %Chg: -3.23

20020517, 110.90, %Chg: -1.75

20020621, 99.28, %Chg: -10.48

20020719, 84.71, %Chg: -14.68

20020816, 93.22, %Chg: 10.05

20020920, 84.35, %Chg: -9.52

20021018, 88.64, %Chg: 5.09

20021115, 91.40, %Chg: 3.11

20021220, 89.99, %Chg: -1.54

20030117, 90.66, %Chg: 0.74

20030221, 85.18, %Chg: -6.04

20030321, 89.67, %Chg: 5.27

20030417, 89.56, %Chg: -0.12

20030516, 94.87, %Chg: 5.93

20030620, 99.44, %Chg: 4.82

20030718, 99.51, %Chg: 0.07

20030815, 99.62, %Chg: 0.11

20030919, 103.67, %Chg: 4.07

20031017, 104.26, %Chg: 0.57

20031121, 104.21, %Chg: -0.05

20031219, 108.90, %Chg: 4.50

20040116, 114.23, %Chg: 4.89

20040220, 114.88, %Chg: 0.57

20040319, 111.06, %Chg: -3.33

20040416, 113.83, %Chg: 2.49

20040521, 109.81, %Chg: -3.53

20040618, 113.63, %Chg: 3.48

20040716, 110.71, %Chg: -2.57

20040820, 110.48, %Chg: -0.21

20040917, 113.15, %Chg: 2.42

20041015, 111.26, %Chg: -1.67

20041119, 117.42, %Chg: 5.54

20041217, 119.44, %Chg: 1.72

20050121, 116.78, %Chg: -2.23

20050218, 120.39, %Chg: 3.09

20050318, 118.54, %Chg: -1.54

20050415, 114.15, %Chg: -3.70

20050520, 119.12, %Chg: 4.35

20050617, 121.36, %Chg: 1.88

20050715, 122.84, %Chg: 1.22

20050819, 122.47, %Chg: -0.30

20050916, 123.50, %Chg: 0.84

20051021, 118.13, %Chg: -4.35

20051118, 125.13, %Chg: 5.93

20051216, 126.36, %Chg: 0.98

20060120, 125.97, %Chg: -0.31

20060217, 128.81, %Chg: 2.25

20060317, 130.62, %Chg: 1.41

20060421, 131.15, %Chg: 0.41

20060519, 127.10, %Chg: -3.09

20060616, 124.65, %Chg: -1.93

20060721, 123.95, %Chg: -0.56

20060818, 130.69, %Chg: 5.44

20060915, 131.96, %Chg: 0.97

20061020, 136.84, %Chg: 3.70

20061117, 140.42, %Chg: 2.62

20061215, 142.34, %Chg: 1.37

20070119, 142.82, %Chg: 0.34

20070216, 145.73, %Chg: 2.04

20070316, 138.53, %Chg: -4.94

20070420, 148.62, %Chg: 7.28

20070518, 152.62, %Chg: 2.69

20070615, 153.07, %Chg: 0.29

20070720, 153.50, %Chg: 0.28

20070817, 144.71, %Chg: -5.73

20070921, 151.97, %Chg: 5.02

20071019, 149.67, %Chg: -1.51

20071116, 145.79, %Chg: -2.59

20071221, 148.13, %Chg: 1.61

20080118, 132.06, %Chg: -10.85

20080215, 135.14, %Chg: 2.33

20080320, 132.08, %Chg: -2.26

20080418, 138.48, %Chg: 4.85

20080516, 142.66, %Chg: 3.02

20080620, 131.58, %Chg: -7.77

20080718, 125.98, %Chg: -4.26

20080815, 130.17, %Chg: 3.33

20080919, 124.12, %Chg: -4.65

20081017, 93.21, %Chg: -24.90

20081121, 79.52, %Chg: -14.69

20081219, 88.19, %Chg: 10.90

20090116, 85.06, %Chg: -3.55

20090220, 77.42, %Chg: -8.98

20090320, 76.71, %Chg: -0.92

20090417, 87.08, %Chg: 13.52

20090515, 88.71, %Chg: 1.87

20090619, 92.04, %Chg: 3.75

20090717, 94.13, %Chg: 2.27

20090821, 102.97, %Chg: 9.39

20090918, 106.72, %Chg: 3.64

20091016, 108.89, %Chg: 2.03

20091120, 109.43, %Chg: 0.50

20091218, 110.21, %Chg: 0.71

20100115, 113.64, %Chg: 3.11

20100219, 111.14, %Chg: -2.20

20100319, 115.97, %Chg: 4.35

20100416, 119.36, %Chg: 2.92

20100521, 109.12, %Chg: -8.58

20100618, 111.73, %Chg: 2.39

20100716, 106.66, %Chg: -4.54

20100820, 107.53, %Chg: 0.82

20100917, 112.49, %Chg: 4.61

20101015, 117.70, %Chg: 4.63


TOTAL MONTHS = 116
DOWN MONTHS = 47
UP MONTHS = 69
 
Interesting information there - I honestly wouldn't have guessed that the market had been up in these time frames more often then it has been down despite the overall drop in the market.

What I would be curious of and would be interested in backtesting would be if there was a way to improve this especially for the really bad months - I think that trying to always close early and not having to pay the full $5.00 to close isn't quite good enough because of potential large drops and the fact that if you close a bit early, the market might roar back near the very end and would have saved you.

My thought would be to add extra puts to the protection side and in the more extreme months (maybe the 5%, but especially the 10%+ months), maybe you could actually profit on the downside.

I am more used to using SPY options, so an example for me would be like if you were doing this today:

Sell 10 SPY Dec 123 Puts
Buy 15 SPY Dec 118 Puts

or maybe something like:

Sell 10 SPY Dec 123 Puts
Buy 10 SPY Dec 118 Puts
Buy 5 SPY Dec 116 Puts

or whatever - this would obviously bring in somewhat less money each good month, but could help out quit a bit in the few down 10%+ months.

Of course, this would actually be worse if you waited till the very end and the SPY ended right at the strike of the extra puts you bought (meaning they are all worthless, but you still owe for the shorts). You would probably want to do something like "If SPY has fallen >5% and at least 1 week remains, close the position" or whatever - I haven't tested this obviously, so you would want to go back and review previous months and when to consider closing maybe.

Just a thought anyway.

JJacksET4
 
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