BTC — 2wk/1wk Diagonal, Far-OTM + Close (low-drawdown, trade-this)
THE SETUP — exact rules (low-drawdown far-OTM variant)
- When: every Friday, only if DVOL < its 90-day median (IV filter — the only entry filter that helps).
- Buy 2-week long: call 5 strikes OTM + put 5 strikes OTM (the cheap far wings).
- Sell 1-week short: call 4 strikes OTM + put 4 strikes OTM (a 4-OTM strangle, 1 strike inside the long).
- Day 7: roll the weekly shorts to the new 4-OTM strikes. Hold the long.
- CLOSE rule: if a long goes ITM (a big move reaches the 5-OTM strike), close BOTH longs — lock the gain, go flat. This is rare (big moves only) so it rarely costs the bid. This halves the drawdown.
- Day 14: otherwise the long cash-settles to intrinsic — re-enter.
- Do NOT: roll the winning side, use a trend filter, or run the ATM version with close (constant bid-bleed). All tested, all worse.
Why far-OTM + close: the short is rarely touched (fewer run-overs → lower DD), and when a big move DOES hit the long, you take the gain instead of giving it back. Both moves cut the drawdown roughly in half each — see the MC table.
Stats
M2 model 2024+: 2024 +45 / 2025 +13 / 2026 +9, 25+26 total +22%, max-DD -4%, win 74%. Real Tardis 2026 (against the orderbook): +5% at max-DD -1.3%.
The honest drawdown (Monte-Carlo, 800 regime-realistic 1-year paths, 5% spread). The far-OTM + close
variant: median annual DD −5.5%, p95 −11.8%, only ~10% of years see a >10% DD, 5th-pct year −5%.
That's the lowest-DD config (ATM was −18% median / 85% of years >10%). Median return ~+10%/year (~0.8%/month).
Caveats: (1) modest return — to reach ~1-2%/month, size up (the DD is low enough); (2) negative skew —
the bootstrap can't draw tails bigger than 2024-26, so a true black-swan hits the thin far-OTM premium harder
than −22%; (3) the close rule costs the bid in calm years (real-2026 +10→+4.7).
Monte-Carlo drawdown distribution (800 paths × 1 year, exec)
| variant | ann.ret med | maxDD med | p95 DD | worst | P(DD<−10%) |
|---|---|---|---|---|---|
| ATM short | +6 | -18.2 | -45.3 | -81 | 85% |
| 4-OTM short (hold) | +13 | -10.0 | -26.1 | -46 | 50% |
| 4-OTM + CLOSE-on-ITM ★ | +10 | -5.5 | -11.8 | -22 | 10% |
Long tenor — 1 vs 2 vs 4 weeks (OTM-ITM rule, IV-filter)
| long | M2 25+26 | M2 DD | Tardis Exec | ExDD | note |
|---|---|---|---|---|---|
| 1wk | +2 | -6.7 | -1.3 | -1.6 | dead — same expiry as short, no calendar carry |
| 2wk | +51 | -19.0 | +23.2 | -0.3 | ★ best risk/reward, smallest tail-DD |
| 4wk | +103 | -52.4 | +38.7 | -5.6 | ~2x return but ~3x conservative DD (net-long-vega) |
Management rules — what was tested
| rule | verdict | evidence |
|---|---|---|
| Far-OTM strikes (short 4 / long 5) | USE | MC: median DD −18→−10, p95 −45→−26, P(>10%DD) 85→50%. Short rarely touched → far fewer run-overs |
| Close both longs when one goes ITM | USE | MC: median DD −10→−5.5, p95 −26→−12, P(>10%DD) 50→10%. Locks the rare big-move gain; ITM is rare so the bid-cost is rarely paid |
| IV filter (DVOL < 90d median) | USE | the only entry filter that cuts DD; sit out high-vol weeks |
| Roll the winning side | DON'T | marginal on M2, hurts 2026 — re-armed short gets run over on reversals |
| Trend / direction filter | DON'T | DD unchanged; trailing trend doesn't predict the forward run-over, only cuts return |
| ATM short / close on ATM variant | DON'T | ATM long goes ITM every small move → closing = constant bid-bleed (loses on real exec). Far-OTM avoids this |
Mechanics you must understand
A 10% move in week 1 does NOT cost 10% — the loss is capped by the 1-strike wing at ~1.5% (the short is run over, the long 1 strike away catches it). Don't panic-close in week 1; it's already capped.
The real risk is WEEK 2. After a big move you re-strike the weekly short to the new spot, but the long wing is now far on the wrong side → the week-2 short is unprotected. If the trend continues, it's run over uncapped — that's where the drawdown tail comes from. In a strong continuing trend you can keep the week-2 short inside the old wing (don't chase) or sit the side out, but no entry filter predicts this reliably.
Equity curves
Week-by-week (M2 2024+, with real Mid/Exec where available)
| Week (Fri) | BTC spot | M2 R | Mid R | Exec R | Cum M2 |
|---|---|---|---|---|---|
| 2024 | |||||
| 2024-01-12 | $45,862 | -0.21 | -0.2 | ||
| 2024-01-19 | $41,292 | -0.03 | -0.2 | ||
| 2024-01-26 | $40,134 | +1.74 | +1.5 | ||
| 2024-02-02 | $43,028 | +4.88 | +6.4 | ||
| 2024-02-23 | $50,966 | -0.89 | +5.5 | ||
| 2024-03-08 | $67,249 | +2.96 | +8.5 | ||
| 2024-03-15 | $67,096 | +2.66 | +11.1 | ||
| 2024-03-22 | $65,864 | +4.01 | +15.1 | ||
| 2024-03-29 | $69,974 | +2.71 | +17.8 | ||
| 2024-04-05 | $67,158 | -0.16 | +17.7 | ||
| 2024-04-12 | $70,790 | +1.51 | +19.2 | ||
| 2024-04-26 | $64,412 | -0.80 | +18.4 | ||
| 2024-05-03 | $59,218 | +2.50 | +20.9 | ||
| 2024-05-10 | $63,050 | +0.96 | +21.9 | ||
| 2024-05-17 | $66,140 | +0.38 | +22.2 | ||
| 2024-05-24 | $67,205 | +0.54 | +22.8 | ||
| 2024-05-31 | $68,138 | +0.69 | +23.5 | ||
| 2024-06-07 | $71,130 | +3.37 | +26.8 | ||
| 2024-06-14 | $67,144 | +1.11 | +27.9 | ||
| 2024-06-21 | $63,638 | +2.01 | +30.0 | ||
| 2024-06-28 | $61,482 | -0.94 | +29.0 | ||
| 2024-07-12 | $57,322 | +0.81 | +29.8 | ||
| 2024-07-19 | $63,822 | +2.22 | +32.0 | ||
| 2024-07-26 | $67,106 | +1.78 | +33.8 | ||
| 2024-08-02 | $64,594 | +1.92 | +35.8 | ||
| 2024-08-09 | $61,094 | +0.15 | +35.9 | ||
| 2024-08-16 | $58,362 | +0.71 | +36.6 | ||
| 2024-08-23 | $61,314 | +0.82 | +37.4 | ||
| 2024-08-30 | $59,448 | +0.58 | +38.0 | ||
| 2024-09-13 | $57,963 | +0.38 | +38.4 | ||
| 2024-09-20 | $63,311 | +0.64 | +39.0 | ||
| 2024-10-11 | $60,669 | +0.04 | +39.1 | ||
| 2024-10-18 | $67,927 | +0.84 | +39.9 | ||
| 2024-10-25 | $67,670 | +2.31 | +42.2 | ||
| 2024-11-01 | $69,375 | +0.28 | +42.5 | ||
| 2024-11-08 | $75,822 | -1.36 | +41.1 | ||
| 2024-11-29 | $96,000 | +1.57 | +42.7 | ||
| 2024-12-13 | $100,273 | +2.38 | +45.1 | ||
| 2025 | |||||
| 2025-01-03 | $96,144 | -1.98 | +43.1 | ||
| 2025-01-10 | $94,670 | +1.51 | +44.6 | ||
| 2025-01-24 | $105,492 | +0.95 | +45.6 | ||
| 2025-01-31 | $104,012 | -0.42 | +45.2 | ||
| 2025-02-07 | $97,032 | +1.01 | +46.2 | ||
| 2025-02-14 | $96,889 | -2.38 | +43.8 | ||
| 2025-02-21 | $98,209 | -1.92 | +41.9 | ||
| 2025-03-07 | $88,362 | -0.01 | +41.8 | ||
| 2025-03-14 | $82,592 | +0.48 | +42.3 | ||
| 2025-03-21 | $84,018 | +0.74 | +43.1 | ||
| 2025-04-11 | $81,636 | +3.04 | +46.1 | ||
| 2025-04-18 | $84,656 | -0.48 | +45.6 | ||
| 2025-04-25 | $93,660 | +3.16 | +48.8 | ||
| 2025-05-16 | $103,368 | +0.31 | +49.1 | ||
| 2025-05-23 | $110,880 | +1.54 | +50.6 | ||
| 2025-05-30 | $105,131 | +0.57 | +51.2 | ||
| 2025-06-06 | $103,452 | +0.59 | +51.8 | ||
| 2025-06-13 | $104,670 | +0.61 | +52.4 | ||
| 2025-06-27 | $106,955 | +1.21 | +53.6 | ||
| 2025-07-04 | $108,706 | -0.91 | +52.7 | ||
| 2025-07-18 | $118,692 | +0.78 | +53.5 | ||
| 2025-08-08 | $116,576 | -0.51 | +53.0 | ||
| 2025-08-15 | $118,867 | +0.13 | +53.1 | ||
| 2025-09-05 | $112,589 | +0.41 | +53.5 | ||
| 2025-09-12 | $115,011 | -1.37 | +52.1 | ||
| 2025-09-19 | $116,863 | -0.61 | +51.5 | ||
| 2025-10-24 | $111,062 | +0.72 | +52.2 | ||
| 2025-11-07 | $101,462 | +3.82 | +56.1 | ||
| 2025-11-28 | $91,637 | +0.98 | +57.0 | ||
| 2025-12-05 | $92,072 | +0.36 | +57.4 | ||
| 2025-12-12 | $92,304 | +0.70 | +58.1 | ||
| 2025-12-26 | $88,699 | +0.46 | +58.6 | ||
| 2026 | |||||
| 2026-01-09 | $89,994 | -0.07 | +58.5 | ||
| 2026-01-16 | $95,629 | -0.40 | +58.1 | ||
| 2026-01-23 | $89,166 | -0.44 | -0.27 | -0.78 | +57.6 |
| 2026-02-13 | $66,670 | +0.77 | +0.87 | +0.53 | +58.4 |
| 2026-02-20 | $67,852 | +0.72 | +0.42 | +0.20 | +59.1 |
| 2026-02-27 | $67,900 | +0.77 | +0.98 | +0.74 | +59.9 |
| 2026-03-06 | $70,756 | +0.60 | +0.62 | +0.31 | +60.5 |
| 2026-03-13 | $71,795 | +0.56 | +0.45 | +0.13 | +61.1 |
| 2026-03-20 | $71,011 | +0.47 | +0.42 | +0.20 | +61.5 |
| 2026-03-27 | $67,874 | -0.56 | -1.07 | -1.34 | +61.0 |
| 2026-04-03 | $66,941 | +5.03 | +4.85 | +4.69 | +66.0 |
| 2026-04-10 | $71,581 | +1.36 | +1.19 | +0.94 | +67.4 |
| 2026-04-17 | $75,739 | +0.30 | +0.26 | +0.08 | +67.7 |
| 2026-04-24 | $77,746 | -0.08 | -0.30 | -0.56 | +67.6 |
| 2026-05-01 | $77,326 | +0.22 | -0.21 | -0.39 | +67.8 |
Source:
run_final_variant.py (variant), run_diag_final.py (tenor/rules),
run_montecarlo.py (DD distribution), run_close_tardis.py (close-rule real check).
M2 bias-corrected 2024+; Tardis real Deribit marks + orderbook bid/ask 2026; MC = block-bootstrap of real
hourly returns + co-moving DVOL with 5% spread.