Developing and Backtesting a Monthly Short-At-The-Money Straddle

Summary

This article explains how to build an options strategy with VeighNa’s template-based OptionStrategy module and evaluate it with historical data. Its example sells one at-the-money call and one at-the-money put on the current month’s China Financial Futures Exchange index options, holding both short positions until expiration and repeating with the next monthly chain. The walkthrough covers subscribing to an option portfolio, locating the at-the-money strike, setting target positions, and configuring a backtest with transaction costs and slippage.

The reported 2021–2022 backtest shows overall gains and frequent small theta income, but also large drawdowns during periods of sharp market movement in early 2021 and 2022; the author says returns and Sharpe were not ideal. No detailed numerical performance table or independent validation is supplied. The example therefore illustrates both the mechanics of testing and the risks of continuously holding an unhedged short straddle. The article points to trend forecasts, spread combinations, and dynamic risk adjustment as possible refinements.

Key ideas

• The example sells the current month’s at-the-money call and put and holds them until expiration.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.