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Calendar Backtesting the COVID-19 Crash (Part 1)

I recently saw a presentation extolling the virtues of a monthly calendar trade. I have backtested calendars in the past without convincing results. After seeing this presentation, I decided to give another look.

The presenter claimed to be a full-time trader for several years. He said he has now traded calendars for at least two years. He traded through the COVID-19 crash and did well. This gives him the confidence to trade calendars in any environment because March 2020 was “the worst thing to happen to the market since 9/11.”

These are his official guidelines on trade setup and management:

My initial backtest guidelines were as follows:

From 12/23/2019 – 10/29/2021, this returned $5,072 on maximum risk $7,775: +65.2%. Over the period, SPX ↑ 42.4% from 3225 to 4594. Max drawdown was -47.4% (-$3,684) on 3/23/20 compared to -31.7% (2203) for SPX on the same date.

The calendar strategy performed comparably (risk/return) to the underlying index, but the presenter said he returned +100% in 2020 alone. Did I do something wrong?

I should never get overly concerned about discrepant performance statistics when I do not exact details about presenter calculations or accuracy. He may have rounded up to 100%—to the nearest 1%, 10%, or 100%!

While I don’t know these details about the presenter, a more detailed look at my methodology reveals:

  1. I managed only by TD—not minding whether trade remained under the tent.
  2. I usually closed at 21 DTE and adjusted as late as 24 DTE.
  3. I did not implement a profit target.
  4. I opened trades near 60 DTE going as short as 56 DTE.
  5. I used only 25-point strikes.
  6. I conducted one long campaign rather than grouping entries and exits into separate trades.

When others present results, I seldom find them forthcoming with a comprehensive, accurate account of methodology enabling me to replicate/verify the numbers. Changing any of these details can affect performance calculations. Live trading results are even worse because some degree of discretion is almost always present. A list of trades can provide opportunity for verification, but this was omitted as well.

I will continue next time.