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If at 6 IM loss I exit the original position then I have 3000 $ loss. This means 5 years of trading -2+3.
If you cover with +2-3 you have the chance to freeze your loss. After that, at least you would have the ability to block the loss and wait for expiration so that the loss would no longer be $ 3000. It would be just a few hundred dollars (as long as SPX does not attack our short puts of the original position).
If you sold the ES spread on Jan 25, 2018, EW3k8p2270(-2)p2000(+3) then on Feb 5 when it went to 100% using 4xIM you did what you said and bought 2 2280 and sold 3 1990 that spread would cost you net $1,640 each to acquire. I don't see anywhere that you accounted for that cost.
From Feb 5th onward the original spread makes back over $1,000 of the loss. The new spread loses over $1,000. You are still out the cost to acquire the 2nd spread.
You need to do a lot more research on your ideas and work them through before posting them here. This one obviously doesn't work.
I am attaching backtesting done on SPX from 2015 to 2018 on TOS for a ratio spread. TOS doesn't allow backtesting of ES and I have still not grasped the concepts of XLS SPAN; I will be working on it. In the past 2-3 months, I found that deltas of options of SPX and ES are almost the same or very close for the same strikes. Hence, I decided to do backtesting on SPX for the ratio spread to get some idea how ES ratio spread could work out till I can use XLS SPAN.
Typically, total premium for the spread on ES is about half of that for SPX. The typical margin for the spread was around $765 in the past few weeks though this will change when market falls. But, I have used these values to calculate the monthly ROI (mROI) for ES based on the SPX profit/loss. TOS shows only end of the day prices for options during backtesting.
The ratio spread is done as follows:
1 long Put at delta = -3 and 3 short Puts at delta = -2 at 90-120 DTE
Exit at 50% of the initial premium or when the current premium is 200% of the initial premium as suggested by James Cordier for stop-loss.
I did not continue backtesting once the 200% stop-loss is hit. I exited the trade at 200% loss and entered a new trade on the same date. Most trades don't have loss; some have losses about $100 which I have not shown in the spreadsheet as these trades eventually became profitable.
TOS backtesting tool doesn't show margin change; hence I could not use the margin for exit criterion.
Hence, how ES ratio spread will work out based on SPX ratio spread may not be very accurate, but I feel, it gives some idea. My apologies if some don't find this useful.
The figures are for non-compounding strategy. The results are based on one position of a ratio spread using 6xIM margin ie 6x$765 for all trades.
(There is a gap between Feb 2016 and March 2016 because I started backtesting first from 18/3/16 till 2018. But then realised that there was a market drop in 2015. So, decided to backtest from 24/2/15.)
You are right but the mROI in the Excel file is calculated for ES, and not for SPX. The margin was assumed to be same as 6x$765 for all ES trades. ES premiums were approximately half of that for SPX. Please see my post and Excel file.
Regards,
Dilip