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Backtesting

Saturday, May 30th 2020

Backtest Basics: Trading On A Specific Day Of The Week

Controlling a backtest to trade on a day of the week, like every Monday and exit every Thursday can be done by setting days to expiration and hold days.

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Summary

This document explains how to control a backtest to trade on a specific day of the week, such as Fridays, by setting days to expiration and hold days. The backtester can also be set to exit using hold days or days to expiration. The document includes examples and images to illustrate these strategies and explains how changes in expiration dates for options can affect backtesting results.

You can set up the backtester to trade only on a certain day of the week. Say you only wanted to trade on Fridays. You would set up the days to expiration min max and ideal all at 8. We count the day of expiration as one day to expiration which is why it is 8 rather than 7: For the options valuation formula, you need time to expiration to be greater than zero for the values to calculate on the Friday of expiration.

You can also control when the backtester exits either by using the Hold Days or exiting with Days to Expiration.

Here's how it looks in the backtester:

This produces an odd looking monthly returns and trades below. Notice there are 4 trades per year before 2010-06-04. These were quarterly options expiring on Saturday.

 

The results are further confused by expirations changing to Friday from Saturday around by weekly options being added around June 04, 2010 (see below). At this time ORATS changed the expiration to Friday for all monthlies and weeklies.

So before June 04, 2010, you need to have 9 days to trade on Fridays and after that date you need 8 days, 9 will trade on Thursday.

 

 

 

 

You can combine these two strategies to make a backtest consistent back to 2007. You would make the Date Range for the 9 day test only to 6/01/2010 and combine that with the 8 day test. 

For exiting, choose Hold Days of say 3 to exit after three calendar days pass:

You can use Days to Expiration for example use 2 to exit the day before expiration:

Here you would exit the day before expiration:

Yes, it is a bit complicated but using these features, you can control the day of the week to enter an exit trades. 

 

From the OIC website.

Disclaimer:

The opinions and ideas presented herein are for informational and educational purposes only and should not be construed to represent trading or investment advice tailored to your investment objectives. You should not rely solely on any content herein and we strongly encourage you to discuss any trades or investments with your broker or investment adviser, prior to execution. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. Option trading and investing involves risk and is not suitable for all investors.

All opinions are based upon information and systems considered reliable, but we do not warrant the completeness or accuracy, and such information should not be relied upon as such. We are under no obligation to update or correct any information herein. All statements and opinions are subject to change without notice.

Past performance is not indicative of future results. We do not, will not and cannot guarantee any specific outcome or profit. All traders and investors must be aware of the real risk of loss in following any strategy or investment discussed herein.

Owners, employees, directors, shareholders, officers, agents or representatives of ORATS may have interests or positions in securities of any company profiled herein. Specifically, such individuals or entities may buy or sell positions, and may or may not follow the information provided herein. Some or all of the positions may have been acquired prior to the publication of such information, and such positions may increase or decrease at any time. Any opinions expressed and/or information are statements of judgment as of the date of publication only.

Day trading, short term trading, options trading, and futures trading are extremely risky undertakings. They generally are not appropriate for someone with limited capital, little or no trading experience, and/ or a low tolerance for risk. Never execute a trade unless you can afford to and are prepared to lose your entire investment. In addition, certain trades may result in a loss greater than your entire investment. Always perform your own due diligence and, as appropriate, make informed decisions with the help of a licensed financial professional.

Commissions, fees and other costs associated with investing or trading may vary from broker to broker. All investors and traders are advised to speak with their stock broker or investment adviser about these costs. Be aware that certain trades that may be profitable for some may not be profitable for others, after taking into account these costs. In certain markets, investors and traders may not always be able to buy or sell a position at the price discussed, and consequently not be able to take advantage of certain trades discussed herein.

Be sure to read the OCCs Characteristics and Risks of Standardized Options to learn more about options trading.

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The opinions and ideas presented herein are for informational and educational purposes only and should not be construed to represent trading or investment advice tailored to your investment objectives. You should not rely solely on any content herein and we strongly encourage you to discuss any trades or investments with your broker or investment adviser, prior to execution. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. Option trading and investing involves risk and is not suitable for all investors. For more information please see our disclaimer.
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