SPX End-of-Day Put Debit Spread Strategy: Rules, Backtest, and Automation
One of the challenges with building an options portfolio is avoiding strategies that all make and lose money the same way.
Many SPX traders rely heavily on credit spreads because they offer high win rates and consistent small gains. The downside, of course, is that when losses occur they tend to be much larger than the average winner.
That's exactly why we developed the EOD PDS (End of Day Put Debit Spread) strategy.
Rather than competing with our popular Trend Spread Engine (TSE) credit spread strategy, the EOD PDS is designed to complement it by providing a completely different risk/reward profile. If you haven't seen the TSE strategy yet, be sure to check out our TSE credit spread article as these two strategies work very well together.
Why We Like Debit Spreads
Most traders naturally gravitate toward high win rate strategies. The problem is that many never experience the benefits of asymmetric risk/reward trades where a single winner can offset multiple small losses.
The EOD PDS embraces that concept.
Over the past four years, the strategy has produced:
- Approximately 35% win rate
- Average winner: $346
- Average loser: $109
- Roughly 3-to-1 reward-to-risk profile
While a 35% win rate may initially sound low, the larger winners more than compensate for the losing trades. This creates a positive expectancy profile that is very different from traditional 0DTE credit spreads.
The Market Condition We Want
The strategy only trade on Tuesday, Wednesday, and Thursday AND only becomes active when SPX is trading below its 5-day Simple Moving Average (5 SMA) on the daily chart.
Why?
When SPX falls below the 5 SMA, it often signals increased short-term volatility and weakness. Those are the environments where sharp end-of-day selloffs become more common.
Instead of selling premium during these periods, the EOD PDS attempts to capitalize on downside movement during the final hour of trading.
Trade Entry Rules
On Tuesday, Wednesday, and Thursday, approximately one hour before the market closes:
- Confirm SPX is trading below the daily 5 SMA.
- Buy a put option with approximately a 30 delta.
- Sell the next lower strike put.
- Enter only if the debit paid is $1.25 or less.
This creates a 5-point-wide put debit spread.
Risk and Reward
With a maximum debit of $1.25 and a 5-point-wide spread, the math becomes very attractive.
- Maximum Risk: $1.25 ($125 per spread)
- Maximum Reward: $3.75 ($375 per spread)
- Risk/Reward Ratio: 1:3
This means a single full winner can offset multiple losing trades while still generating a net profit.
For traders accustomed to credit spreads, the EOD PDS provides exposure to a completely different return profile that can improve portfolio diversification.
Why It Pairs Well With TSE Credit Spreads
Our TSE credit spread strategy focuses on:
- Higher win rates
- Smaller average gains
- Larger occasional losses
The EOD PDS focuses on:
- Lower win rates
- Larger average gains
- Smaller defined losses
By combining strategies with different expectancy profiles, traders may be able to reduce dependence on any single market condition while maintaining a steady flow of trading opportunities.
The result is a portfolio that is not solely dependent on high win rates to generate returns.
Backtested Results
The accompanying backtest graphics above show:
- Overall performance statistics
- Equity curve
- Annual profit breakdown
While past performance never guarantees future results, the results demonstrate that a low win rate strategy can still produce positive expectancy when paired with strong risk/reward characteristics.
Simple to Trade, Easy to Automate
One of the biggest advantages of the EOD PDS is its simplicity.
Unlike many intraday strategies that require constant monitoring, this strategy only requires a quick check during the final hour of the trading day. If SPX is trading below the daily 5 SMA and the trade criteria are met, the position can be entered in just a few minutes.
For most traders, this means less than 5 minutes of screen time per day when conditions are present.
For those who prefer a completely hands-off approach, Alpha Crunching has gone a step further by offering full automation of the EOD PDS strategy. Once connected, trades can be entered automatically when the setup occurs, allowing traders to participate without needing to watch the market.
We also provide EOD PDS trade alerts through our growing Discord community, where SPX options traders share ideas, discuss strategy performance, and follow along with current trade opportunities. Whether you prefer manual trading, alerts, or full automation, there are multiple ways to incorporate this strategy into your trading routine.
Final Thoughts
One of the biggest mistakes traders make is focusing exclusively on win rate.
The EOD PDS serves as a reminder that profitable trading comes from the relationship between win rate, average win size, and average loss size.
With a 30% win rate, average winners of $345, and average losers of just $109, this strategy demonstrates how asymmetric risk/reward can create a positive edge over time.
For traders already using the TSE credit spread strategy, the EOD PDS may provide an additional source of opportunity during periods of increased volatility when many traders are sitting on the sidelines wondering what to trade next.
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