Playing the Short Side on SPX
So lately I’ve been revisiting some strategies on premium selling, i.e., selling SPY or SPX puts. This strategy is actually a very profitable one that has low volatility and can be scaled up to larger portfolios without worrying about a massive drawdown. The key is to know when to sell the different option maturities, and implied volatility can be a reasonable indicator for this.
Essentially, my strategy would be to sell SPX puts that are far out of the money either weekly when VIX is low (below 15), monthly when VIX is intermediate (between 15 and 20), or quarterly when VIX is high (above 20). The definitions of low, intermediate, and high were determined for myself by doing a simple percentile split for VIX levels from 1999 to date; the median VIX value has been around 18 to 19.
I’ve used SPX and VIX data from 01/04/1999 to 11/25/2016 to create the following summary tables for a rough guideline to which maturities I’d want to sell at and how far out of the money.
Weekly SPX Return Statistics Conditional on VIX
| Statistics | VIX Summary | SPX Returns: VIX < 15 | SPX Returns: 15 <= VIX < 20 | SPX Returns: 20 <= VIX < 25 | SPX Returns: VIX >= 25 |
| Total Occurrences | 932 | 257 | 257 | 209 | 209 |
| Mean | 20.86 | -0.03% | 0.11% | -0.10% | 0.44% |
| Std | 8.70 | 1.27% | 1.56% | 2.42% | 3.68% |
| Min | 9.97 | -6.26% | -5.36% | -7.60% | -14.92% |
| 25th Percentile | 14.57 | -0.77% | -0.81% | -1.62% | -1.63% |
| 50th Percentile | 19.25 | 0.08% | 0.35% | 0.14% | 0.51% |
| 75th Percentile | 24.46 | 0.87% | 1.20% | 1.30% | 2.90% |
| Max | 80.06 | 2.69% | 3.23% | 5.84% | 14.12% |
Probability Heat Map for Loss Thresholds and VIX Levels
Monthly SPX Return Statistics Conditional on VIX
| Statistics | VIX Summary | SPX Returns: VIX < 15 | SPX Returns: 15 <= VIX < 20 | SPX Returns: 20 <= VIX < 25 | SPX Returns: VIX >= 25 |
| Total Occurrences | 215 | 59 | 58 | 52 | 46 |
| Mean | 20.70 | 0.09% | 0.38% | -0.43% | 0.80% |
| Std | 8.35 | 2.20% | 3.02% | 4.56% | 6.66% |
| Min | 10.31 | -6.00% | -7.63% | -9.72% | -16.56% |
| 25th Percentile | 14.68 | -1.55% | -1.92% | -3.70% | -3.61% |
| 50th Percentile | 18.96 | -0.02% | 1.07% | -0.30% | 1.61% |
| 75th Percentile | 23.95 | 1.86% | 2.54% | 2.81% | 5.71% |
| Max | 68.51 | 4.06% | 4.81% | 8.66% | 14.02% |
Probability Heat Map for Loss Thresholds and VIX Levels
Quarterly SPX Return Statistics Conditional on VIX
| Statistics | VIX Summary | SPX Returns: VIX < 15 | SPX Returns: 15 <= VIX < 20 | SPX Returns: VIX >= 20 |
| Total Occurrences | 213 | 58 | 57 | 98 |
| Mean | 20.75 | 1.40% | -0.03% | 1.13% |
| Std | 8.37 | 3.56% | 6.58% | 9.50% |
| Min | 10.31 | -8.10% | -15.83% | -29.85% |
| 25th Percentile | 14.68 | -1.07% | -4.01% | -4.28% |
| 50th Percentile | 19.02 | 1.86% | 0.77% | 2.99% |
| 75th Percentile | 24.02 | 3.37% | 4.94% | 7.99% |
| Max | 68.51 | 7.30% | 10.13% | 31.15% |
Probability Heat Map for Loss Thresholds and VIX Levels
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