STUDY 1

The stop that made the worst day 13× smaller

“No stop” won 99% of days. It also had the worst drawdown in the test.

Hypothetical backtest. SPX 0DTE 25-wide put credit spread, 1 contract, Jan 2015 – Oct 12 2026 (2,960 trading days). Black-Scholes model prices from daily ^GSPC + ^VIX bars, put IV = VIX × 1.25, $0.65/leg fees, $0.15 slippage on stop exits. Daily bars: any touch of the stop counts as a stop, no gaps, no intraday path. Use for relative comparison only, not expected P&L.

The setup

Each day, sell the 25-wide put spread whose credit is closest to ~$1.075 (target $1.00–1.15; average actual credit $1.15). Hold to expiry unless the stop fires. The stop buys the spread back when its value reaches N× the credit received.

Results ($ per 1 contract)

StopWin%Avg winAvg lossWorst dayMax DDTotalP&L/DDStops (would’ve expired worthless)
None99%113-1,234-2,3964,636293k630
1.5× credit81%113-75-100645228k353574 (536)
2× credit85%113-131-1821,080228k212438 (400)
2.5× credit88%113-188-2641,663229k138354 (316)
3× credit91%113-246-3471,736235k135280 (242)
Equity curves: credit target with no stop, 2x and 3x stops, and fixed delta

What it shows

Stress periods (2× stop, $)

RuleFeb 2018Q4 2018Mar 20202022Aug 2024Apr 2025
2× stop+1,023+590+117+13,208+206+78

With no stop, Feb 2018 alone was −$2,631.

Caveats

Model prices, not real quotes. Daily bars can’t show gaps through a stop. VIX usually exceeds realized volatility, which flatters the no-stop line. A real 5-delta 25-wide spread often pays well under $1.00.

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