https://preview.redd.it/rpf0vasl96fg1.png?width=975&format=png&auto=webp&s=f8b7ad4720ee475009d381c31c11a7861fd9e4aa
So I've been running this 0DTE strategy for a few months now. The backtests are amazing, and it held up so far in live trading. The thing is, this strategy is basically pure short convexity and short gamma on 0DTE SPX options. The idea is to define an opening range, wait for price to breakout, then fade the OPPOSITE side of the opening range. That is, if price breaks to the upside, we sell a low delta put credit spread, and the opposite with a call credit spread if price breaks to the downside. The idea is to capitalize on intraday continuation tendencies in a predictable way. But the biggest issue here is, performance pretty much depends entirely on avoiding tail days. Narrower spreads/smaller sizing reduces return a lot, but caps the tail risk. Right now I'm running with a smaller account and risk pretty high, but I will de-lever things as the account grows.
Anyone else find success with this type of strategy? Is there really an edge in selling far out of the money 0dte options - or am I fooling myself? Realistically, how likely is it that a multi-percentage point intraday violent reversal occurs, and also gets past my tail day filters? Is it better to run with larger size/wider spreads and use a stop loss, or run it with smaller spreads and hold everything until expiration? Is 3 years of backtest data enough to draw statistical conclusions?
Fully systematic. Every rule has economic meaning. No ML. No discretion. All backtests run through QuantConnect.
Let me know guys what you think of this and if this is something you would want to trade on your account.