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A couple weeks ago I posted here about selling strangles on futures and the variance risk premium. The response was way beyond what I expected, and a lot of people asked for more detail on the actual numbers. So here they are
This is 130\~ trades, all short strangles on futures, managed mechanically. I'm going to share what worked, what didn't, and a few things in the data that surprised me.
[Two sets of return metrics I track; before and after I adjusted my strategy a bit circa 2023](https://preview.redd.it/498mz5cm0tqg1.png?width=1525&format=png&auto=webp&s=129f01980e64c9602459033babc67b0178b758ad)
**The setup (for anyone who missed the first post):**
20-delta strangles on futures across currencies, grains, metals, energy, and rates. Enter when IVR is above \~50%. Manage at 50% profit, 2x loss, or 21 DTE time stop, whichever comes first.
**The headline numbers:**
\- Win rate: 83.65%
\- Average winner: 0.47x of risk
\- Average loser: \~1x of risk
\- Average hold time: 27 days
\- Profit factor: \~1.3
\- IRR per trade on risked capital (always holding out 2x margin requirement): 5.06%
These are great, realistic results! They're roughly what the tastytrade backtests predict for this kind of structure with this management. Nothing groundbreaking in isolation. The interesting stuff is in the details.
**The data by underlying (this is what I found most useful):**
Not all futures are created equal for premium selling. After 4 years, a clear tier list has emerged in my own data:
**Tier 1 (consistent, reliable, would trade these every month if IVR cooperates): EUR/USD (/6E), GBP/USD (/6B), JPY/USD (/6J), Corn (/ZC), Soybeans (/ZS), Crude Oil (/CL)**
These have a few things in common. Decent option liquidity (tight enough bid-ask that you're not giving up your edge on entry/exit). Reasonable margin requirements. And most importantly, they tend to mean-revert over the 27-day average holding period. Currencies in particular are wonderful for this. They oscillate. Central banks anchor them. They rarely go in a straight line for 6 weeks.
**Tier 2 (trade selectively, can be great but have quirks): Gold (/GC), Silver (/SI), Copper (/HG), 10-year Notes (/ZN), Wheat (/ZW)**
Gold and silver are fine most of the time but when they move, they move fast and the correlation between them means if one stops you out the other probably does too. Wheat has incredible premium when IVR is high but the gap risk around USDA reports has bitten me more than once. 10-year notes are low premium but very well-behaved, good for filling out a portfolio but not exciting.
**Tier 3 (approach with extreme caution): Natural Gas (/NG)**
I know. The premium on NG is unbelievable. IVR is almost always elevated. The strangles look incredible on paper. But the gap risk is in a different league from everything else. NG can move 8-10% overnight on a storage report or a weather forecast change. My NG strangles have a lower win rate and significantly worse average loser than any other underlying. The 2x stop frequently gets blown through because the move happens overnight or in a fast market where you can't get filled at your stop level.
I still trade NG occasionally when conditions are perfect (very wide strikes, very high IVR, no major reports imminent) but I size it at half what I'd size a currency strangle. If you're selling NG strangles at full size, my data says you're taking more risk than the premium justifies. The premium is high for a reason.
**Time-based patterns that surprised me:**
Trades that are profitable at day 10 close as winners about 92% of the time. Trades that are losing at day 10 close as winners only about 65% of the time. That 65% is still above breakeven but the information value is clear: the first third of the trade is highly predictive of the final outcome. I haven't changed my management rules based on this (the mechanical system works and I don't want to add discretionary elements), but it's interesting.
The average winner closes at day 19. The average loser closes at day 31. Winners close faster than losers, which makes sense: winners hit the 50% profit target quickly when things go right, while losers tend to grind toward the 2x stop or hit the 21 DTE time stop. This has implications for capital efficiency. Your capital is freed up faster on winners, which means the compounding effect is better than a simple per-trade analysis would suggest.
**The correlation problem:**
I currently run up to 12 strangles simultaneously. The whole point of trading across asset classes is decorrelation. And in normal markets, it works beautifully. My monthly P&L has a lower standard deviation than my per-trade P&L, which is exactly what diversification should do.
But I've had 3 months in 4 years where 4+ strangles stopped out in the same month. Every time, it was a broad risk-off event that moved currencies, commodities, and rates simultaneously. March 2020 was the worst (I was trading fewer underlyings at the time, but the ones I had all got hit).
This is the fundamental tension of the strategy: diversification works 90% of the time and partially fails at the exact moment you need it most. It doesn't completely fail because the magnitudes are different (the yen might gap 4% while soybeans only move 2%) but the simultaneity of stops being hit is the primary drawdown driver.
My current approach to this is conservative sizing (2% per position when the account is large enough) plus a 25% margin reserve. That won't prevent the drawdown but it makes it survivable. I've also started exploring buying cheap deep OTM options on other futures as a dedicated tail risk sleeve, but that's still a work in progress (I posted about the theory behind that a couple weeks ago if anyone's curious, won't rehash it here).
**The IVR filter really matters:**
I went back and separated my trades by IVR at entry:
IVR > 50 at entry: 87% win rate, 0.52x average winner
IVR 30-50 at entry: 79% win rate, 0.41x average winner
IVR < 30 at entry: too few trades to draw conclusions (I mostly avoid these)
The high-IVR trades win more often AND win bigger. This isn't surprising in theory (you're selling more premium when IV is elevated, so your strikes are wider and your credit is larger), but seeing it in my own data was the thing that made me strict about the filter. I used to be more flexible about entering at IVR 35 if the chart "looked good." The data killed that habit.
**What I'd tell past me:**
Trade fewer underlyings, not more. I used to try to have positions on everything. Now I focus on the Tier 1 list and only venture into Tier 2 when conditions are exceptional. Concentration in the best underlyings beats diversification across mediocre ones.
Respect the 2x premium received stop religiously. I had a phase where I'd widen my stop to 3x "because the trade still had time." It worked sometimes. When it didn't, the outsized loss wiped out multiple winners. The data is unambiguous: 2x stop produces better risk-adjusted returns than 3x or no stop.
The margin reserve isn't optional. I learned this the hard way when a vol spike expanded my margin requirements and I had to close positions at unfavorable levels because I didn't have enough cash. Keep the same amount of margin deployed in the account in cash. It feels like a drag when everything is going well. It's the thing that saves you when everything goes wrong.
Don't sell NG strangles at the same size as everything else. Just don't. The premium is a trap. The bid-ask spread alone costs more than you realize, and the gap risk means your actual average loss is worse than your theoretical stop level. Size it at half or skip it.
**Where I am now:**
I'll be around and happy to answer specific questions. If anyone else is doing something similar on futures and wants to compare notes, especially on the underlying selection or the correlation problem, I'd be very interested to hear your experience.