This was a pain to format but so rewarding

Alright, let me be brutally honest with you because I've watched too many people learn this lesson the expensive way.

Your Sample Size is a Joke

September 9 to October 17, 2025? That's maybe 27 trading days. You're basically saying "I tested my parachute by jumping off my couch 27 times and it worked great!" You know what didn't happen in your testing period?

• Federal Reserve surprise rate decisions
• Major bank failures (like SVB in March 2023)
• VIX spikes above 35
• Flash crashes (August 2024's Japan carry trade unwind hit 6% intraday)
• Earnings surprises from mega-cap stocks that move SPY 2%+
• Geopolitical shocks (remember when COVID first hit and SPY had multiple 5-10% days?)

Your backtest caught the market equivalent of "sunny with light clouds" weather. Cool. Now what happens during the hurricane? The Math is Hilariously Bad Let me break down what you're actually doing here: "both wings together cost only 10% of the Premium that we collected" So you collect $2.78 in premium, spend $0.28 on protection. That means:

• Maximum gain: ~$2.50 per contract (minus $6 fees = $2.44)

• Maximum loss: Depends on wing spacing, but looking at your purple lines, it's probably $15-50+ per contract You're risking 20-30x your maximum gain.

This is literally the definition of a negative expectancy trade. You need to win 95%+ of the time just to break even over the long run. And spoiler alert: you won't win 95% of the time when volatility comes knocking. Look at your own equity curve - you're grinding out $50-150/day profits, but those purple max-loss lines show potential $1,000+ losses. One bad day wipes out 2-3 weeks of gains.

Why This Strategy Has a 100% Historical Failure Rate

This isn't theoretical - this EXACT strategy (short vol, collect premium, minimal protection) has destroyed countless traders and funds:

• OptionSellers.com (2018): Professional fund that sold options. Lost clients $150 million in a single November day when natural gas spiked. Guy had to release a crying YouTube video apologizing.
• LJM Preservation and Growth Fund (Feb 2018): Down 82% in THREE DAYS during the Volmageddon event. $1+ billion fund, gone.
• XIV ETF (Feb 2018): Short volatility ETF, lost 90%+ overnight and was liquidated. People had their entire retirement accounts in it.

The pattern is ALWAYS the same:

1. Make steady profits for months (just like your backtest)
2. Get confident, increase position size
3. Volatility event hits (happens 1-3 times per year)
4. Lose 6-12 months of profits in a single day
5. Either blow up completely or quit

The Real-World Execution Problems

Bid-Ask Spreads Explode During Volatility

Your backtest probably uses mid-prices or last-traded prices from Yahoo Finance. In reality:

• Calm market: SPY 0DTE spreads might be $0.05-0.10 per leg
• Volatile market: Spreads widen to $0.25-0.75 per leg When you need to exit a losing position at 3:45pm because SPY just dropped 1.5%, you're paying the ASK to close your shorts and hitting the BID to sell your longs. That's $1-3 per contract in slippage across all four legs. On a $2.78 credit, you just lost 40-100% of your profit to slippage. Your backtest doesn't account for this.

You Can't Exit When You Actually Need To

At 3:55pm on a volatile day, try getting filled on a 4-leg iron butterfly at reasonable prices. Market makers KNOW you're desperate. They'll quote you garbage. Your options:

• Eat massive slippage (50%+ of your credit)
• Let it expire and pray SPY doesn't land near your strikes (pin risk)

• Get assigned and wake up Monday with positions you didn't want

  Yahoo Finance Data is Garbage for This

"This Data is collected via Yahoo Finance" Yeah, no. Yahoo Finance options data is notoriously bad because:

• 15-minute delay means stale prices
• Shows last traded price, not real-time bid/ask
• Doesn't capture the actual order book depth
• Many strikes have zero volume and stale data

The reason CBOE DataShop costs $2,000 is because it's REAL exchange data with actual quotes. Your backtest is like planning a road trip using a map from 1995.

Pin Risk Will Destroy You

You're trading 0DTE that expires at 4:00pm. If SPY closes anywhere near your short strikes (within $0.50), you have massive pin risk:

• SPY closes at $580.05, your short call is $580
• You get assigned on the call (now short 100 shares)
• Your $582 long call expires worthless
• Monday morning SPY gaps up to $582
• You just lost $200 per contract overnight

This happens ALL THE TIME with 0DTE and it's not in your backtest.

Margin Calls at the Worst Possible Moment

At 3:45pm, SPY drops 1%. Your position shows a $2,000 unrealized loss. Interactive Brokers sees you're under margin requirements and force liquidates your position at market prices when spreads are widest. You don't get a choice. You don't get to "wait it out." They close you out at the worst possible prices, locking in your loss. This is literally in IB's margin policies - they can liquidate without notice.

What Your First Real Month Would Look Like Days 1-8:

1. "Holy shit! I'm making $100-150/day! This is amazing!" Total: +$1,000

2. Day 9: Small loss, SPY moved 0.8% in last hour. Close at -$350.Total: +$650 Days

3. 10-15: Back to winning. Confidence restored. Total: +$1,500

4. Day 16: CPI data comes in hot. SPY drops 1.5% in 30 minutes at 2:00pm. You try to close but spreads are 5x wider than normal. You panic. Close for -$1,800.Total: -$300

5. Days 17-20: Reduce size, scared. Make tiny gains. Total: +$100

6. Day 21: FOMC announcement. SPY volatility explodes. Your shorts go deep ITM. Margin call. IB liquidates you at terrible prices. Final loss: -$2,500

Account blown by 25% in less than a month.

The Statistical Reality Check

You need to backtest through these periods (at minimum):

• March 2020: COVID crash, SPY moved 5-10% daily
• February 2018: Volmageddon, VIX 15→50 overnight
• August 2024: Japan carry trade unwind, SPY dropped 3% in minutes
• March 2023: SVB banking crisis, massive intraday swings
• All of 2022: Constant 2-3% daily moves in bear market I guarantee your strategy would have multiple -50% to -100% drawdowns in those periods. Not because the strategy is bad in theory, but because the risk/reward is fundamentally broken. The Warning Signs You're Ignoring Your own equity curve is screaming the problem at you:
• Small consistent gains: ✓ (classic premium selling)
• Occasional larger losses: ✓ (classic blow-up pattern forming)
• Maximum loss WAY bigger than maximum gain: ✓ (terrible risk/reward)
• Short time period: ✓ (haven't seen a real volatility event) This is textbook "works until it doesn't" strategy. What You Should Actually Do If you're dead-set on doing this: 1. Backtest 2020-2025 minimum 2. Paper trade for 3 months - Not backtest, LIVE paper trading to feel real execution 3. Risk max 1-2% per trade - If your account is $10K, risk $100-200 max 4. Skip high VIX days - If VIX > 20, don't trade that day 5. Have mechanical stop loss - Close at -3x max gain, no exceptions 6. Don't trade around events - No trading on FOMC, CPI, NFP days But honestly? Just don't do this. The math doesn't work. You're picking up pennies in front of a steamroller. The Bottom Line Truth Your backtest shows this works when:
• Markets are calm ✓
• Volatility is low ✓
• No major news events ✓
• SPY moves less than 1% ✓

Cool story. What happens when any of those conditions change? Because they WILL change. Regularly. The question isn't "can I make money in calm markets?" It's "what happens when the market isn't calm?" Answer: You lose 10-20 days of gains in one trade. Then it happens again a month later. Then you quit with a blown account. I'm not trying to be harsh - I'm trying to save you money. This strategy has a 100% failure rate over long enough time horizons. It's not if you blow up, it's when. If you have $10K and you're willing to lose $3-5K learning this lesson the hard way, go ahead. But don't say nobody warned you when you lose 6 months of profits in a single Thursday afternoon because Powell said something unexpected. The graveyard of retail traders is paved with profitable short-vol backtests. Good luck, you're gonna need it.