Call Credit Spread Back Test
An option trader asked us to perform a back test on ITM Call Credit spread, so we did him a favor and ran a test from 2005 to 2015. This test was to see if this delta configuration would work without any stop losses, while testing various amounts of capital invested.
The trade rules were as follows with SPX as the underlying.
Sell 30 DTE each month.
Sell 71 delta
Buy 50 delta
Use 50% of capital (later we also test 10% and 1%)
No stop losses or gains will be implemented for this test
The strategy blows up the account the very first year only using 50% of the capital to invest. 2006 – 2008 prove to be winning years, but 2005, 2009, 2010, 2011, 2012, 2013, 2014 are all losing years averaging over 30% loss per month. 2015 would have been a winning year, but no money was left in the account after the first year of testing in 2005. This trade set up did not profit with 10% or 1% invested either.