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After 9 hours of work on this I have finished my long term study using ES spreads.
I started 1/2/13. I used a short option that was close to 0.0400 delta and was 90+ DTE. The long part of the spread was an option with a delta close to 0.0100. I exited the trade the first day the settlement was down 50% or more from the beginning price. I used IMx3 and 7.00 RT costs per contract. Starting balance was $100,000.
The one thing about the prior table is that I ignored the spread hitting the exit point on 10/15/14. I did that so that you could compare the ROI for a naked options and spreads over a long term. See summary table in next post.
Here is table with trades and exiting on 10/15/14 with a loss.
I want to put this large loss in context. I used the settlement price on 10/15/14. If you were sitting there watching it you would not have waited till the close of 10/15/14 to exit. So your loss in actual trading would have been less. But if you were not at your computer that day this is what would have happened.
Here is a summary of the long term studies using 50% drop exit point.
Doing 0.0300 delta spreads makes more money than the same delta for naked options. This is because of lower IM which allows more positions. But because of the lower IM and lower excess the spreads hit the exit point on 10/15/14 when the naked options didn't.
After I recover from this study I will work on different exit points.
I have a question. For Lines 1 and 2, your short strike is higher than than the long strike but for the rest of the lines, its the other way around. Please clarify.
Thanks ron99 for your study.
Concurrently I did my own research for put spreads with delta ~ 5.8 and exit at 40%. These spreads did pass through 18/09 - 10/15 drop. I think it`s due higher IM wich provide more excess (more delta - higher IM). But please notice that max drawdown increse too (for this strategy max DD = 32,8% from account balance).
I've been working through the figures and I can follow most of it, but I'm not sure about the exits. You say exit at 40%, but the exit price doesn't have a fixed relation to the entry price, so the 40% must refer to something else?
Sorry if I'm missing something obvious, and thanks again,