Backtest Basics: Spread Yield to Define Amount Paid or Received on a Trade

The backtest entry criteria called Spread Yield is a powerful parameter that controls the relative price of the trade to the stock price (spread yield = price paid / stock price). A negative price paid or receiving a credit, produces a negative spread yield.

For a traditional short put spread, first, I like to run a backtest without using the spread yield, download the trades, and get a feel for the average percentage the trades in the backtest are yielding. Do this by downloading the report output and opening the StrategyOutputs StrategyTrades.csv as show in this blog post. Add up the amount received for each trade and divide by the stock price. If the average is 1% and the minimum is 0.3% and maximum is 3%, you might want to set a minimum on the spread yield of -.005 (indicating -0.5%) the least amount of credit spread yield percentage you would want to receive.

We had a question from a customer about how to set up a long calendar diagonal for a credit. This involves adjusting the strike leg relationships since we define a long calendar as the same strike with different expirations.

I like to set the leg strike widths very wide and have the backtest pick the best matching trade for me as explained in this post.

Here's the NDX Long Call Calendar that you can see by clicking here and if you click Edit and Submit the backtest will save to your backtests: https://wheel.orats.com/backtest/1Q55EpN2K1yW7RTxcxHERtdLMhSH6L8K1q

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