Strategy Details.

The SPX Theta strategy calculates a multi-factor score comprised of sub-Scores using Shorter-Term SPX and VIX Trend Following methods.

Shorter-term SPX Score.

A multi-time period trend following score that focuses on shorter-term S&P 500 Index moving averages. 

Shorter-term VIX Score.

A multi-time period trend following score that focuses on shorter-term VIX Index moving averages.

Average True Range Delta Throttle

The Average True Range Delta Throttle uses a Fast Moving Average vs. a Slow Moving Average of Average True Range. When the Fast ATR Moving Average exceeds the Slow ATR Moving Average by more than a statically significant amount, then the delta entry is "throttled" to a lower delta or not traded that day due to elevated market volatility.

SPX Theta's thesis is to use several shorter-term SPX and VIX trend following methods to objectively target delta exposure.

 

When Bullish, take less risk selling further OTM (lower delta) call credit spreads and more risk (higher delta), higher income generating put credit spreads.

 

When Bearish, take less risk selling further OTM (lower delta) put credit spreads and more risk (higher delta), higher income generating call credit spreads.
 

0-DTE.

Trading strategy uses a variable delta entry system to construct an skew-adjusted Iron Condor with short leg entries ranging from 0-20 delta 25 strikes wide, expiring the same day of entry.

 

My trades are placed preferably starting around 9:40am EST and throughout the day to spread my daily premium $ sale target. 

In Taxable: I target selling daily premium to equal ~1% of my equity value per side of the leg, or 2% total. Risk is 2% per side (at stop loss). Risk 2 : Make 1

In IRA: Higher, generally 2-6%

The composite reading ranges from 0 to 4, signaling the bearishness (low score) or bullishness (high score) of the delta entry.

 

Readings of 3 to 4 are considered Bullish. Readings of 2 are considered Neutral. Readings below 2 are considered Bearish. 

  1. Readings of 4 to 3 - Reflect Bullish readings and the SPX Theta system adjusts entry Delta higher on the Put Credit Spread (PCS) side and entry Delta lower on the Call Credit Spread (CCS) side when forming the Iron Condor.

  2. Readings of 2.0 to 2.5 - Reflect Neutral readings and the SPX Theta system adjusts to a more neutral Delta entry on both the Put Credit Spread and Call Credit Spread side when forming the Iron Condor.

  3. Readings of 0 to 1.5 - Reflect Bearish readings and the SPX Theta system adjusts entry Delta higher on the Call Credit Spread side and avoids entry of any Put Credit Spread side. 

The take profit rules are discretionary with a bias to take profit at $0.10-0.25 or let expire worthless (with a change of the stop loss to breakeven, equaling the original premium received) if spread is untested and far OTM.

Risk management is critical to long-term success of the strategy. The most important aspect to controlling risk and portfolio drawdown risk is employing a disciplined stop loss on both the put credit spread and call credit spread. The strategy uses Stop-Limit Orders on 300% of credit received, i.e. a 2x loss on initial credit received, per each side of the condor spread. Thus, I use 2 separate Stop-Limit orders, one for the Put Credit spread (PCS) and one for the Call Credit Spread (CCS). In the final hours, if needing to manage a stressed side, I suggest buying back to close the short-leg. Execution will be much easier as the long-leg is likely worthless. You can then hold the long-leg or sell after managing risk.

SPX Theta trades 0-DTE expiry credit spreads & iron condors.
 

Why SPX and XSP and not SPY?

Index options are European style, meaning they cannot be exercised before expiration. Equity options (such as SPY), on the other hand, can be exercised anytime. Stock options settle to shares of the underlying stock, while index options settle to cash. This eliminates having to buy the SPY ETF in the event of assignment. Index options qualify for the 60% long-term, 40% short-term capital gains tax treatment. Finally, Index options are not subject to wash-sales.