Those aren't the results you are going to get. The market is too efficient to give out free lunches Also, on a single ic you are collecting $35 to open with a closing cost of $56...so factor that into the results x 10 trades. Are you using a spreadsheet? What if you did 1 10 contract IC's versus 10 1 contract IC's?
But is your method of measuring the risk/reward correct? Limit the Sx range to -1SD to +1SD only. And if possible do similar also for the volatility itself (HV and/or ATMIV). IMO only then becomes any such a risk/reward calc somewhat realistic.
I think SD is irrelevant in this scenario because your stops are going to get tagged even if your strike isn't. Can we get a real world example based on spx today and put it to the test?
Hmm. let me think a little bit on it... Ok, got it. Yes, in this special case of using StopLoss it certainly is the case as you said But if one had the choice to pick a 0DTE trade amongst many tickers, then one surely would apriori make a risk/reward calc and therein one should limit the final outcome to the -1SD to +1SD range. For picking the one with the best risk/reward score amongst them. That's what I was suggesting. Ok, this is not necessary if there is only SPX to use My suggestion for 0DTE testing: I think a much better test environment is to do Monte Carlo simulations using GBM plus options data derived from it... This makes sense especially for 0DTE b/c here we don't need to simulate any overnight gaps... Even multiple GBM streams with a wanted correlation is possible to do.
Wait...it is relevant. The problem with this strategy is that your stops will get tagged even when the price finishes otm. So you are constantly leaving premium on the table. I guess the question is do the losses prevented by the stops over come the premium left on the table? I think in an efficient market it would be negligible. This would mean that this strategy should perform no different if you remove the stops?
In my backtest i use the high price of the options, so if they get tagged the are also tagged in my backtest..