Short SPX 1-DTE Straddles

Comparison between single point of entry short positions vs various intraday weighting schemes

Markets last week and a half have been quick to turn on the short vol trade, as discussed in:

Finally breaking the highs...

June saw great performance for any kind of premium selling strategy. July, so far, shorting 1-DTE straddles has lost ~50pts of premium. Despite straddles underpricing the moves last week and a half, few people have noticed that, largely, all the vol has been reserved for only an hour or so each day.

This led me to compare the performance of single entry short 1-DTE ATM straddle (opened at previous close) vs a mix of different intraday weighting schemes. For intraday weightings, a straddle is broken down into multiple smaller straddles struck ATM at a particular point in time during the day.

For example, for short 1-DTE straddle at close, one would short 1x SPX Call & Put with the same ATM strike. For the weighted straddle, one would sell 1-2-3 XSP Calls & Puts at various points throughout the day up to 10 total (to reflect equal max risk with 1x SPX straddle.) All bets are calculated using the same $200k fixed notional.