Market Measures

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Put Ratio Backtest

Market Measures

A recent Best Practices segment showed how we like to set up ratio spreads when we are either trying to create a certain amount of long or short deltas or trying to profit from the underlying pinning a certain strike. Today, we are looking specifically at the put ratio and how it has performed as a strategy in all environments versus times of high IV Rank.

The Study
  • 2005 to present
  • S&P 500 ETF (SPY)
  • 45 DTE
  • Bought one 50 delta put & sold two 33 puts

Tom predicted that this strategy should have performed well in the mostly bull market that we have seen since 2005. What is interesting, though, is how this strategy worked in high IVR and what proportion of trades expired in the larger profit zone as opposed to profit zone where only the net credit was received.

The Results

Of course, Tom is right again! Put ratio spreads in SPY have been profitable since 2005, with greater profits seen in high IV Rank environments. Check the segment above for more details on this strategy for creating long deltas.

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