Update on Combining Short-Term Short Nasdaq-100 (NDX) Straddles and Long One-Month Straddles

A few months ago, we explored trying to smooth out performance of consistently shorting straddles with a buying dated long straddle using NDX options. We found that a consistent strategy selling NDX 3-Day at-the-money (ATM) straddles was a viable approach over the 15-month period starting in January 2023 through March 2024. With 3 more months of data, it is time for an update.

First, we can review the performance associated with consistently selling NDX 3-Day ATM straddles and holding them to expiration. This would involve normally having three short positions on, except when there is a third-Friday expiration among the series expiring in the next 3 days. For example, on the close on a Monday, a 3-day straddle would expire, and a straddle would be sold using options expiring that Thursday (in 3 days) just before the market close. On the open the next day (Tuesday), a trader would have short straddles expiring that day along with the following two days (Wednesday and Thursday).

The table below summarizes monthly performance of consistently shorting NDX ATM straddles in 2023. This approach was net profitable over the course of 2023, but there were a couple of painful months (May and November). Those drawdown months were the reason we decided to explore matching up some sort of long option strategy with this approach.

Over the first six months of 2024, this approach continued to mirror the same performance seen in 2023, with net profits but a couple of periods of drawdowns (January and May/June).

The next table demonstrates combining a longer dated long ATM straddle with the consistent short strategy. The 1-Month straddle is defined as the straddle expiring on the last Friday of the month. For example, for July 2024 this is July 26.

In the first column on the table below, the performance for owning one straddle each month is based on a single position. The second column restates the monthly performance associated with shorting a 3-Day straddle. The final three columns indicate the performance combining 1, 2, or 3 long straddles with the short straddle approach. 

Again, our goal behind adding a long position to the short strategy is to smooth performance and reduce drawdowns. The result is a less volatile result, but also an improvement in profitability. The only negative performance in 2023 on the previous table of note is September 2023, with three long straddles combined with the short 3-Day approach.

Similar improvement is seen when combining a long straddle with the short approach in 2024. January is the only losing month for the combined approaches while May and June improved with the addition of a long, longer dated straddles. Also, the January performance for combined positions is slightly better than the short only approach.

Both approaches, a consistent long straddle expiring on the last Friday of the month and selling 3-Day ATM straddles are viable on their own. However, combining the two results in better performance and less volatility around those results.