V14: M1-M4 Term Structure Diagonal Grid
Delta-neutral diagonal grid across all month-pair combinations (M1-M4). Tests which term structure pair × option type × IV regime works best. PP+contango M2→M4 = 87% hit rate. Backwardation: flip the trade.
v13 → Delta-neutral diagonal grid with coarse DTE>90 filter v14 → Fine-grained M-position pairs (M1-M4), PP/CC × contango/backwardation, flipped trade analysis
🔑 Key Finding: M2→M4 + PP + IV contango is the best combination — 87.2% hit rate, 93% end-of-day profitable. In backwardation, flip the trade: buy near put / sell far put (reverse calendar).
M-Position Labels: M1 = nearest active expiry, M2 = next, M3 = next, M4 = farthest. Labels are relative — when M1 expires, M2 becomes M1. This captures term structure position, not specific months. M1→M4 and M2→M4 have variable DTE diff because M4 is a quarterly (Dec) contract — distance grows as we approach.
DTE Reference by M-Position
| M-Pair | DTE Diff | Early June (near/far) | Mid July (near/far) |
|---|---|---|---|
| M1→M2 | ~28-35d | 23d / 51d | 12d / 47d |
| M1→M3 | ~63d | 23d / 86d | 12d / 75d |
| M1→M4 | ~91-154d | 23d / 114d | 12d / 166d |
| M2→M3 | ~28d | 51d / 86d | 47d / 75d |
| M2→M4 | ~63-119d | 51d / 114d | 47d / 166d |
| M3→M4 | ~91d | 86d / 114d | 75d / 166d |
PP + Contango — Hit Rate by M-Pair (sell near put / buy far put)
| M-Pair | n | Hit% | EndProf% | AvgMax | AvgEnd |
|---|---|---|---|---|---|
| M1→M2 | 139 | 34.5% | 38.1% | +0.0110 | -0.0053 |
| M1→M3 | 39 | 61.5% | 76.9% | +0.0531 | +0.0261 |
| M1→M4 | 52 | 48.1% | 75.0% | +0.0260 | +0.0153 |
| M2→M3 | 99 | 85.9% | 77.8% | +0.0666 | +0.0426 |
| M2→M4 | 86 | 87.2% | 93.0% | +0.0529 | +0.0423 |
| M3→M4 | 251 | 55.8% | 71.7% | +0.0212 | +0.0095 |
Hit% = % of combos that reached +0.01 profit intraday. EndProf% = % profitable at close.
PP + Backwardation — All Negative (sell near put / buy far put)
| M-Pair | n | Hit% | AvgEnd | Flipped AvgEnd |
|---|---|---|---|---|
| M1→M2 | 390 | 13.3% | -0.0148 | +0.0148 |
| M1→M3 | 433 | 18.9% | -0.0104 | +0.0104 |
| M1→M4 | 738 | 24.7% | -0.0073 | +0.0073 |
| M2→M3 | 505 | 17.8% | -0.0145 | +0.0145 |
| M2→M4 | 1157 | 21.3% | -0.0096 | +0.0096 |
| M3→M4 | 809 | 19.8% | -0.0124 | +0.0124 |
⚠️ Flipped = buy near put / sell far put (reverse calendar) in backwardation. These are implied, not directly tested.
CC + Contango — Mediocre (all negative avg end PnL)
| M-Pair | n | Hit% | EndProf% | AvgEnd |
|---|---|---|---|---|
| M1→M2 | 364 | 8.0% | 27.5% | -0.0058 |
| M1→M3 | 315 | 18.7% | 33.7% | -0.0066 |
| M1→M4 | 539 | 40.3% | 39.9% | -0.0075 |
| M2→M3 | 375 | 14.7% | 31.2% | -0.0044 |
| M2→M4 | 757 | 33.2% | 39.1% | -0.0046 |
| M3→M4 | 618 | 41.4% | 42.4% | -0.0041 |
Trading Rules
Contango (near IV > far IV):
✅ Sell near put / Buy far put (PP diagonal) — M2→M4 best (87% hit, +0.042 avg)
✅ M2→M3 also strong (86% hit, +0.043 avg)
❌ CC diagonal doesn't work (all negative avg PnL)
Backwardation (near IV < far IV):
✅ Buy near put / Sell far put (reverse PP diagonal) — M1→M2 or M2→M3 best (+0.015 implied)
✅ You buy cheap near vol, sell expensive far vol — the opposite of contango
Either regime:
✅ M2 as the short leg is optimal — M1 too close (thin premium), M3/M4 too slow (low theta)
✅ Further apart months = bigger IV edge = higher hit rate
❌ M1→M2 (adjacent near-expiry) barely works — too little IV spread
⚠️ Caveats
- 29 days is a small sample — one market regime (mostly downward June)
- Spread estimates are modeled, not actual bid/ask
- Delta-neutral filter (|Δ| < 0.10) means net delta ≈ 0, but gamma is negative
- No transaction costs, no slippage, no fill assumptions
- Backwardation flipped trades are implied from negative PnL, not directly tested
Per-Day Detail
| Date | S0 | Chg% | Range% | Expiries | Total | Hit% | EndProf% |
|---|---|---|---|---|---|---|---|
| 20260601 | 4.086 | -2.99% | 3.28% | 5 | 363 | 24.2% | 32.5% |
| 20260602 | 3.993 | +1.95% | 3.38% | 5 | 362 | 16.6% | 31.8% |
| 20260603 | 4.103 | +1.02% | 3.58% | 5 | 348 | 17% | 31.3% |
| 20260604 | 4.074 | +0.64% | 1.37% | 5 | 353 | 28.6% | 44.2% |
| 20260605 | 4.067 | -2.21% | 4.16% | 5 | 348 | 21.3% | 35.1% |
| 20260608 | 3.873 | -1.19% | 3.18% | 5 | 334 | 22.8% | 31.7% |
| 20260609 | 3.874 | +2.53% | 3.38% | 5 | 332 | 19.9% | 21.7% |
| 20260610 | 3.905 | -0.9% | 2.71% | 5 | 347 | 30% | 49% |
| 20260611 | 3.874 | -1.14% | 3.87% | 5 | 330 | 12.7% | 27.9% |
| 20260612 | 3.925 | -2.01% | 2.27% | 5 | 312 | 9.3% | 28.8% |
| 20260615 | 3.899 | +3.74% | 4.67% | 5 | 292 | 26.7% | 22.6% |
| 20260616 | 4.077 | +0.83% | 2.11% | 5 | 273 | 12.5% | 42.9% |
| 20260617 | 4.076 | +2.63% | 2.63% | 5 | 270 | 15.9% | 35.6% |
| 20260618 | 4.199 | +1.67% | 2.05% | 5 | 295 | 18% | 42% |
| 20260622 | 4.276 | +2.41% | 3.23% | 5 | 305 | 18.4% | 30.5% |
| 20260623 | 4.343 | -3.06% | 4.44% | 5 | 337 | 38% | 36.8% |
| 20260624 | 4.223 | +0.83% | 2.18% | 4 | 292 | 27.1% | 33.6% |
| 20260625 | 4.274 | +2.83% | 3.23% | 4 | 500 | 29.6% | 30.4% |
| 20260626 | 4.314 | -2.29% | 3.34% | 4 | 536 | 40.3% | 42.7% |
| 20260629 | 4.203 | +0.79% | 3.64% | 4 | 560 | 31.8% | 44.3% |
| 20260630 | 4.239 | +2.95% | 3.26% | 4 | 535 | 26% | 41.5% |
| 20260701 | 4.362 | -2.02% | 3.12% | 4 | 513 | 32% | 39.4% |
| 20260702 | 4.131 | -2.3% | 3.95% | 4 | 529 | 36.9% | 41.2% |
| 20260703 | 4.038 | -0.02% | 3.07% | 4 | 561 | 25.8% | 38.3% |
| 20260706 | 4.029 | -1.46% | 3.85% | 4 | 546 | 23.6% | 22.9% |
| 20260707 | 3.936 | -0.1% | 2.79% | 4 | 483 | 27.5% | 30% |
| 20260708 | 3.95 | -2.1% | 3.39% | 4 | 470 | 35.3% | 28.5% |
| 20260709 | 3.921 | +3.03% | 5.46% | 4 | 460 | 40.2% | 45.7% |
| 20260710 | 4.057 | -4.81% | 5.27% | 4 | 505 | 30.7% | 24.6% |