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Monday, September 9th 2019

Sell Put Spread When VIX Spikes, Exit Based on Max Profit

Backtest a short put spread with entry rules like VIX price and percent of max profit and exit based on stop loss and OTM%.

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Summary

This article describes a two week SPY short put spread strategy that involves selling a put spread with 30 delta / 15 delta, selling it when VIX spikes, exiting if 80% of max profit is achieved or if the loss equals to max profit, and rolling into a new short put spread if the stock price is at short price. The article provides screenshots of the backtester to illustrate the strategy and includes a link to the backtest.

We received a question from one of our customers asking how to set up the following two week SPY short put spread strategy in our backtester.

  • Sell a put spread with 30 delta / 15 delta
  • Sell price is 15% of max potential price
  • Sell it when VIX spikes
  • Exit if 80% of max profit is achieved
  • Exit if the loss equals to max profit
  • Roll into new short put spread if the stock price is at short price

Sell a put spread with 30 delta / 15 delta looks like this in the backtester:

 

Sell price is 15% of max potential price: The max price potential is the difference between strikes. Here's how this looks in the backtester, note that for a credit spread the percentages are negative:

 

Sell it when VIX spikes: We will consider a VIX spike as the price of the VIX going up at least 10% over the last week price. Here's what this looks like in the backtester:

 

Exit if 80% of max profit is achieved:

 

Exit if the loss equals to max profit: The max profit here is 80% (exit point) minus 15% (entry point) or 65% so we will enter a stop loss as below:

 

Roll into new short put spread if the stock price is at short price: We will use Exit Leg on Strike Trigger where we exit when the long put otm%>=1:

 

Here is a link to the backtest above. You need to be logged into Wheel. You can get a free trial here.

More reading HERE.

 

 

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The opinions and ideas presented herein are for informational and educational purposes only and should not be construed to represent trading or investment advice tailored to your investment objectives. You should not rely solely on any content herein and we strongly encourage you to discuss any trades or investments with your broker or investment adviser, prior to execution. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. Option trading and investing involves risk and is not suitable for all investors.

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The opinions and ideas presented herein are for informational and educational purposes only and should not be construed to represent trading or investment advice tailored to your investment objectives. You should not rely solely on any content herein and we strongly encourage you to discuss any trades or investments with your broker or investment adviser, prior to execution. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. Option trading and investing involves risk and is not suitable for all investors. For more information please see our disclaimer.
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