Let’s backtest the performance of various different position sizes when selling strangles. We will backtest the following:
- Sell Strangles with 10% of available buying power
- Sell Strangles with 20% of available buying power
- Sell Strangles with 50% of available buying power
All Strangles will have the identical entry / exit rules:
- Underlying Instrument: SPY
- Days To Expiration: 40 – 50 days
- Short Call: 25 – 30 delta
- Short Put: 25 – 30 delta
- Hold the strangles to expiration
The only difference will be the number of contracts / position size of the strangles.
The OptionStack platform makes it easy to adjust the position size. We will Size By the Margin of the short strangles, allocating from 10% of buying power to 50% of buying power.
The strategies were backtested over a 6 year period. The results are displayed above. As you can see from the charts above, the difference in position size of the strangle resulted in a large variation in performance.
So when it comes to trading, size does indeed matter! Size matters a lot in the markets!
If you want to evaluate how position sizing can affect your trading strategies, OptionStack makes it easy to analyze the impact of position sizing. Sign up now to get started!