SPX Historical Spread Plays

Hi Wayne,

Thanks for posting the SPY info for the decade. It correlates well with the SPX settlements, as one would suppose. The SPX figures are 79/45 (I'm presuming an up Nov, since we're now 40 points ahead of the Oct settlement). SPY options are more heavily traded than the SPX, undoubtedly because they are lower in price than their SPX counterparts and thus have allure for smaller, public traders. The bid/ask spread is often better than the SPX, as well. Plus, since they settle at the end of the day's trading session, they are not subject to the manipulation often seen in the SPX settlement. However, to me there are several negatives in using them. First, the one point spread between strikes equals a ten point spread in the SPX, so loss exposure is greater than the 5 point spread I use in the SPX. Second, and most important, is that they are American style options, so one is always subject to earlv exercise/assignment on the ITM portion of the spread. Finally, they are not settled in cash so closing out an ITM spread at settlement could involve the purchase and sale of the underlying, which would create a reportable tax event. With all that said, the strategy I discussed will work as well with SPY as it does with SPX options.
 
Hi JJacks,

Your idea re downside protection is a good one. After all there is a significant number of down months in the strategy. Unfortunately, they appear in no discernable pattern. Importantly, protective puts ought to work exceptionally well in the SPX/SPY contracts because the down months tend to be quite severe. Thus the time value you pay for an OTM put gets revovered and quickly becomes intrinsic value in those cycles. I haven't back tested it, but I have the feeling that doing so might well be a worthwhile exercise. If you choose to do so, please post your findings.
 
OOOOPS. I made a typo on the historical win/loss record of the SPX settlements. The correct figures are 74/45. Sorry for the goof, the coffee hadn't kicked in yet, I guess.
 
Interesting conversation... I am more of an XEO guy myself but since the correlation between XEO and SPX is high, it probably applies. Gonna have to look into it
 
Quote from optionsmaven:

Hi Wayne,

Thanks for posting the SPY info for the decade. It correlates well with the SPX settlements, as one would suppose. The SPX figures are 79/45 (I'm presuming an up Nov, since we're now 40 points ahead of the Oct settlement). SPY options are more heavily traded than the SPX, undoubtedly because they are lower in price than their SPX counterparts and thus have allure for smaller, public traders. The bid/ask spread is often better than the SPX, as well. Plus, since they settle at the end of the day's trading session, they are not subject to the manipulation often seen in the SPX settlement. However, to me there are several negatives in using them. First, the one point spread between strikes equals a ten point spread in the SPX, so loss exposure is greater than the 5 point spread I use in the SPX. Second, and most important, is that they are American style options, so one is always subject to earlv exercise/assignment on the ITM portion of the spread. Finally, they are not settled in cash so closing out an ITM spread at settlement could involve the purchase and sale of the underlying, which would create a reportable tax event. With all that said, the strategy I discussed will work as well with SPY as it does with SPX options.
More...

I understand that there are some benefits to using SPY but I use SPX due to the contract size and tax benefits among other things. For those of you who don’t know, SPX will be going electronic so I am hopeful for a jump in volume and a tightening of spreads in the near future.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=207939
 
Here are some more data for monthly index (XEO and SPX) closes. Keep in mind these are third Friday closes.


Third Friday to third Friday changes (at Close) for XEO--X

Start 20020215 Price: 559.65

20020315, 591.13, %Chg: 5.62

20020419, 559.79, %Chg: -5.30

20020517, 553.30, %Chg: -1.16

20020621, 489.42, %Chg: -11.55

20020719, 423.10, %Chg: -13.55

20020816, 468.44, %Chg: 10.72

20020920, 423.90, %Chg: -9.51

20021018, 449.02, %Chg: 5.93

20021115, 463.72, %Chg: 3.27

20021220, 455.46, %Chg: -1.78

20030117, 457.36, %Chg: 0.42

20030221, 429.87, %Chg: -6.01

20030321, 456.36, %Chg: 6.16

20030417, 453.71, %Chg: -0.58

20030516, 475.72, %Chg: 4.85

20030620, 502.39, %Chg: 5.61

20030718, 501.50, %Chg: -0.18

20030815, 498.30, %Chg: -0.64

20030919, 520.62, %Chg: 4.48

20031017, 518.12, %Chg: -0.48

20031121, 511.77, %Chg: -1.23

20031219, 540.26, %Chg: 5.57

20040116, 564.72, %Chg: 4.53

20040220, 564.87, %Chg: 0.03

20040319, 543.68, %Chg: -3.75

20040416, 554.94, %Chg: 2.07

20040521, 534.33, %Chg: -3.71

20040618, 554.81, %Chg: 3.83

20040716, 535.90, %Chg: -3.41

20040820, 536.04, %Chg: 0.03

20040917, 545.80, %Chg: 1.82

20041015, 531.80, %Chg: -2.57

20041119, 559.69, %Chg: 5.24

20041217, 567.37, %Chg: 1.37

20050121, 557.32, %Chg: -1.77

20050218, 575.42, %Chg: 3.25

20050318, 567.94, %Chg: -1.30

20050415, 547.25, %Chg: -3.64

20050520, 565.75, %Chg: 3.38

20050617, 572.34, %Chg: 1.16

20050715, 575.53, %Chg: 0.56

20050819, 566.67, %Chg: -1.54

20050916, 573.37, %Chg: 1.18

20051021, 544.50, %Chg: -5.04

20051118, 574.69, %Chg: 5.54

20051216, 579.08, %Chg: 0.76

20060120, 571.51, %Chg: -1.31

20060217, 585.04, %Chg: 2.37

20060317, 593.49, %Chg: 1.44

20060421, 593.13, %Chg: -0.06

20060519, 578.88, %Chg: -2.40

20060616, 572.76, %Chg: -1.06

20060721, 572.50, %Chg: -0.05

20060818, 601.50, %Chg: 5.07

20060915, 609.01, %Chg: 1.25

20061020, 636.01, %Chg: 4.43

20061117, 652.41, %Chg: 2.58

20061215, 663.11, %Chg: 1.64

20070119, 665.38, %Chg: 0.34

20070216, 668.84, %Chg: 0.52

20070316, 633.94, %Chg: -5.22

20070420, 680.82, %Chg: 7.40

20070518, 699.80, %Chg: 2.79

20070615, 704.53, %Chg: 0.68

20070720, 709.92, %Chg: 0.77

20070817, 674.53, %Chg: -4.99

20070921, 713.35, %Chg: 5.76

20071019, 700.31, %Chg: -1.83

20071116, 680.61, %Chg: -2.81

20071221, 693.57, %Chg: 1.90

20080118, 620.43, %Chg: -10.55

20080215, 623.85, %Chg: 0.55

20080320, 620.38, %Chg: -0.56

20080418, 640.60, %Chg: 3.26

20080516, 652.15, %Chg: 1.80

20080620, 597.13, %Chg: -8.44

20080718, 580.57, %Chg: -2.77

20080815, 598.88, %Chg: 3.15

20080919, 577.91, %Chg: -3.50

20081017, 448.99, %Chg: -22.31

20081121, 389.88, %Chg: -13.17

20081219, 424.18, %Chg: 8.80

20090116, 400.94, %Chg: -5.48

20090220, 363.75, %Chg: -9.28

20090320, 363.40, %Chg: -0.10

20090417, 406.33, %Chg: 11.81

20090515, 414.23, %Chg: 1.94

20090619, 430.43, %Chg: 3.91

20090717, 441.14, %Chg: 2.49

20090821, 476.11, %Chg: 7.93

20090918, 492.70, %Chg: 3.48

20091016, 502.89, %Chg: 2.07

20091120, 508.79, %Chg: 1.17

20091218, 508.73, %Chg: -0.01

20100115, 524.11, %Chg: 3.02

20100219, 508.57, %Chg: -2.97

20100319, 530.53, %Chg: 4.32

20100416, 544.68, %Chg: 2.67

20100521, 494.31, %Chg: -9.25

20100618, 504.70, %Chg: 2.10

20100716, 484.21, %Chg: -4.06

20100820, 485.86, %Chg: 0.34

20100917, 509.04, %Chg: 4.77

20101015, 530.78, %Chg: 4.27


TOTAL MONTHS = 104
DOWN MONTHS = 44
UP MONTHS = 60
 
I don't have SET data, but here are the Friday closes.



Third Friday to third Friday changes (at Close) for SPX
Start 19980320 Price: 1,099.16

19980417, 1,122.72, %Chg: 2.14

19980515, 1,108.73, %Chg: -1.25

19980619, 1,100.65, %Chg: -0.73

19980717, 1,186.75, %Chg: 7.82

19980821, 1,081.24, %Chg: -8.89

19980918, 1,020.09, %Chg: -5.66

19981016, 1,056.42, %Chg: 3.56

19981120, 1,163.55, %Chg: 10.14

19981218, 1,188.03, %Chg: 2.10

19990115, 1,243.26, %Chg: 4.65

19990219, 1,239.22, %Chg: -0.32

19990319, 1,299.29, %Chg: 4.85

19990416, 1,319.00, %Chg: 1.52

19990521, 1,330.29, %Chg: 0.86

19990618, 1,342.97, %Chg: 0.95

19990716, 1,418.78, %Chg: 5.64

19990820, 1,336.61, %Chg: -5.79

19990917, 1,335.42, %Chg: -0.09

19991015, 1,247.41, %Chg: -6.59

19991119, 1,422.00, %Chg: 14.00

19991217, 1,421.03, %Chg: -0.07

20000121, 1,441.36, %Chg: 1.43

20000218, 1,346.09, %Chg: -6.61

20000317, 1,464.47, %Chg: 8.79

20000420, 1,434.54, %Chg: -2.04

20000519, 1,406.95, %Chg: -1.92

20000616, 1,464.46, %Chg: 4.09

20000721, 1,480.19, %Chg: 1.07

20000818, 1,491.72, %Chg: 0.78

20000915, 1,465.81, %Chg: -1.74

20001020, 1,396.93, %Chg: -4.70

20001117, 1,367.72, %Chg: -2.09

20001215, 1,312.15, %Chg: -4.06

20010119, 1,342.54, %Chg: 2.32

20010216, 1,301.53, %Chg: -3.05

20010316, 1,150.50, %Chg: -11.60

20010420, 1,242.98, %Chg: 8.04

20010518, 1,291.96, %Chg: 3.94

20010615, 1,214.36, %Chg: -6.01

20010720, 1,210.85, %Chg: -0.29

20010817, 1,161.97, %Chg: -4.04

20010921, 965.80, %Chg: -16.88

20011019, 1,073.48, %Chg: 11.15

20011116, 1,138.65, %Chg: 6.07

20011221, 1,144.89, %Chg: 0.55

20020118, 1,127.58, %Chg: -1.51

20020215, 1,104.18, %Chg: -2.08

20020315, 1,166.16, %Chg: 5.61

20020419, 1,125.17, %Chg: -3.51

20020517, 1,106.59, %Chg: -1.65

20020621, 989.14, %Chg: -10.61

20020719, 847.75, %Chg: -14.29

20020816, 928.77, %Chg: 9.56

20020920, 845.39, %Chg: -8.98

20021018, 884.39, %Chg: 4.61

20021115, 909.83, %Chg: 2.88

20021220, 895.76, %Chg: -1.55

20030117, 901.78, %Chg: 0.67

20030221, 848.17, %Chg: -5.94

20030321, 895.90, %Chg: 5.63

20030417, 893.58, %Chg: -0.26

20030516, 944.30, %Chg: 5.68

20030620, 995.69, %Chg: 5.44

20030718, 993.32, %Chg: -0.24

20030815, 990.67, %Chg: -0.27

20030919, 1,036.30, %Chg: 4.61

20031017, 1,039.32, %Chg: 0.29

20031121, 1,035.28, %Chg: -0.39

20031219, 1,088.66, %Chg: 5.16

20040116, 1,139.83, %Chg: 4.70

20040220, 1,144.11, %Chg: 0.38

20040319, 1,109.78, %Chg: -3.00

20040416, 1,134.61, %Chg: 2.24

20040521, 1,093.56, %Chg: -3.62

20040618, 1,135.02, %Chg: 3.79

20040716, 1,101.39, %Chg: -2.96

20040820, 1,098.35, %Chg: -0.28

20040917, 1,128.55, %Chg: 2.75

20041015, 1,108.20, %Chg: -1.80

20041119, 1,170.34, %Chg: 5.61

20041217, 1,194.20, %Chg: 2.04

20050121, 1,167.87, %Chg: -2.20

20050218, 1,201.59, %Chg: 2.89

20050318, 1,189.65, %Chg: -0.99

20050415, 1,142.62, %Chg: -3.95

20050520, 1,189.28, %Chg: 4.08

20050617, 1,216.96, %Chg: 2.33

20050715, 1,227.92, %Chg: 0.90

20050819, 1,219.71, %Chg: -0.67

20050916, 1,237.91, %Chg: 1.49

20051021, 1,179.59, %Chg: -4.71

20051118, 1,248.27, %Chg: 5.82

20051216, 1,267.32, %Chg: 1.53

20060120, 1,261.49, %Chg: -0.46

20060217, 1,287.24, %Chg: 2.04

20060317, 1,307.25, %Chg: 1.55

20060421, 1,311.28, %Chg: 0.31

20060519, 1,267.03, %Chg: -3.37

20060616, 1,251.54, %Chg: -1.22

20060721, 1,240.29, %Chg: -0.90

20060818, 1,302.30, %Chg: 5.00

20060915, 1,319.87, %Chg: 1.35

20061020, 1,368.60, %Chg: 3.69

20061117, 1,401.20, %Chg: 2.38

20061215, 1,427.09, %Chg: 1.85

20070119, 1,430.50, %Chg: 0.24

20070216, 1,455.54, %Chg: 1.75

20070316, 1,386.95, %Chg: -4.71

20070420, 1,484.35, %Chg: 7.02

20070518, 1,522.75, %Chg: 2.59

20070615, 1,532.91, %Chg: 0.67

20070720, 1,534.10, %Chg: 0.08

20070817, 1,445.94, %Chg: -5.75

20070921, 1,525.75, %Chg: 5.52

20071019, 1,500.63, %Chg: -1.65

20071116, 1,458.74, %Chg: -2.79

20071221, 1,484.46, %Chg: 1.76

20080118, 1,325.19, %Chg: -10.73

20080215, 1,349.99, %Chg: 1.87

20080320, 1,329.51, %Chg: -1.52

20080418, 1,390.33, %Chg: 4.57

20080516, 1,425.35, %Chg: 2.52

20080620, 1,317.93, %Chg: -7.54

20080718, 1,260.68, %Chg: -4.34

20080815, 1,298.19, %Chg: 2.98

20080919, 1,255.08, %Chg: -3.32

20081017, 940.55, %Chg: -25.06

20081121, 800.03, %Chg: -14.94

20081219, 887.88, %Chg: 10.98

20090116, 850.12, %Chg: -4.25

20090220, 770.05, %Chg: -9.42

20090320, 768.54, %Chg: -0.20

20090417, 869.60, %Chg: 13.15

20090515, 882.88, %Chg: 1.53

20090619, 921.23, %Chg: 4.34

20090717, 940.38, %Chg: 2.08

20090821, 1,026.13, %Chg: 9.12

20090918, 1,068.30, %Chg: 4.11

20091016, 1,087.68, %Chg: 1.81

20091120, 1,091.38, %Chg: 0.34

20091218, 1,102.47, %Chg: 1.02

20100115, 1,136.03, %Chg: 3.04

20100219, 1,109.17, %Chg: -2.36

20100319, 1,159.90, %Chg: 4.57

20100416, 1,192.13, %Chg: 2.78

20100521, 1,087.69, %Chg: -8.76

20100618, 1,117.51, %Chg: 2.74

20100716, 1,064.88, %Chg: -4.71

20100820, 1,071.69, %Chg: 0.64

20100917, 1,125.59, %Chg: 5.03

20101015, 1,176.19, %Chg: 4.50


TOTAL MONTHS = 151
DOWN MONTHS = 66
UP MONTHS = 85
 
Two aspects of this cause me some concern.

Backtesting has significant limitations whether you use tick data, or settlement data. Depending on getting the fills in real trading as you did in backtesting frequently leads to disappointment.

Furthermore, backtesting has a tendency to lead to curve fitting unless proper precautions are taken. Dividing the model into two sets, not contiguous, is a good way to avoid this. The model is developed on one data set and then verified by viewing it's performance on data it has never seen.

My second concern is martingale money management. I've never been a fan of this. I'm far more motivated by lessons from the gambler's ruin theorem.

__________________
Author - "These Seven Trading (Investing) Secrets Will Explode Your Account: All I Know About Trading (Investing) I Learned in Flight School"
 
Hi Howard,

Back testing with a preconcieved notion of how a strategy might turn out is prone to 'fudging' the numbers to fit one's ideas. However, the settlement numbers don't lie, and the facts are that over a decade in which the SPX had a net 15% loss of value, nearly two thirds of the monthly cycles were up. That's an anomaly that is hard to ignore. Further, my two years of actually trading the system profitably have convinced me of its viabilty. Whilst 'systems work until they don't' may well be true, I'm sticking with this one until it doesn't. Re your antipathy towards martingales, I'll agree they're not for everyone. One needs 'cohones' after a couple of consecutive losses to continue. But the one that I use is the modified type, described in a previous post on this thread, that is NOT a doubling after each loss and thus is not a huge drain on capital. In any event, the technique is also profitable with a flat investment.
 
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