0 DTE Credit Spread Credit Target Relative Comparison

Previously I've done backtest on the different configurables of a 0 DTE credit spread. I've always felt that all these configurables could affect the trade quite significantly when put together, that's why I've been doing backtest on each of them.

On timing entry, it includes 3 parts, 0 DTE Backtest - Entry Timing, 0 DTE Backtest - Entry Timing 2 and 0 DTE Backtest - Entry Timing 3.

On spread width, Backtest 0 DTE Bull Put Spread Width Comparison and 0 DTE Put/Call Spread - Width x Stoploss Backtest Comparison which also involves Stoploss comparison.

On stoplosses itself, 0 DTE Credit Spread Backtest - Stoploss Study.

There have been quite a lot of data points and inspiration from these backtest done on OptionOmega, which led me to another configurable that I find could be one very important one.

Credit Target

I see many people trading 0 DTE credit spreads and everyone seems to have varying results daily. And among the few other backtest I did before mentioned above, Credit Target seems to be something that could affect performance quite significantly.

Even myself, not sure about anyone else trading 0 DTE credit spread, have been thinking about this. What credit target should I use? 0.7? 0.9? 1.1? 1.3? 1.5? and most importantly why? It seems to me most people choose their credit target because of preference, not so much backed by backtest or any reference. So this triggered me to think of a way to backtest this.

OptionOmega Backtest

To set the backtest base, I fixed the width at 50, stoploss at 200%. Fees at $1.5, Exit Slippage at $0.2. These are the values that I've consistently used in my previous backtests.

This is an example of how it looks like in OptionOmega

I will be running this across different timings for past 1 year and run it on every single credit target from 0.6-1.5. During the many many runs, I noticed there are some runs that result in negative PCR so I excluded some of those.

In this backtest, what I'm looking at is relativity and patterns. Like I always say these backtest although very granular at 1 minute, it's still historical data. It does not necessary represent what the future is going to be like. So the more important point here is to identify a certain pattern. Such pattern might be due to various reasons and some of which potentially is persistent, meaning higher chances of it repeating in the future while not guaranteed.

I think in total I ran about 100 variations and compiled into the data below.

Just to capture all my OptionOmega backtest data, I'll put all the raw screenshots here for reference. You can skip down to the summary part for the combined data and chart.

Put runs on 9:33 13:30 14:15 15:15

Call Runs on 9:33

So to explain abit, those blank areas in the results are because the results end up negative. For these I will fill the PCR data with 0 in the combined chart below. Also the 14:15 timing is almost entirely negative for all credit target so I dropped it.

The idea here is not to pick timing, is to find relativity in the different credit target and identify patterns. So I just wanted more data sample size to show that.

Summarise Table and Chart

For Put PCR, there seems to be an obvious pattern. This pattern seems quite consistent across the 4 different timings, all of them are gradually sloping upwards. The PCR is best when we credit target $1.2-1.4.

For Call PCR, it's interesting here. The later timings seems to be obviously sloping down while the earlier timings are very slightly sloping up. This kinda tells us that we should do higher credit target in AM which is similar to the Put PCR, around 1.2-1.4, while lower credit target in PM around 0.6-0.8. At least for this set of backtest results.

The result is quite different from the Put PCR which I believe it's due to the natural Put/Call skew. Just that I didn't expect it to be so different in credit targeting relative comparison.

Conclusion

Even after doing so many runs, I'm still not 100% convinced to a certain extend. It just felt that there are so many possible slight configuration change that can sway the results. Like maybe a 150% stoploss is going to be very different, or a different width could also affect this.

But since I'm currently running 200% stoploss, that's more of my personal priority and preference to test out this configuration. That's why I always felt having OptionOmega is one of the value investment, it definitely save me money from testing these with real trades.

In trading, everyone ends up running their own preferred configuration. There's no 1 size fit all, it depends on every individuals risk appetite and acceptance to the behavior of that trade. When you do enough real trades and backtest you'll slowly learn and understand alot of these granular details.

If you have similar backtest or want to discuss about these backtests, please feel free to comment here or find me in Discord.