Backtest Exiting an Options Spread with Price Divided by Max Profit

There may be a time when the current market price of a spread is so large or so small relative to the max profit when you will want to exit the trade.

For example, if you have a long put butterfly that is $3.00 strike points wide and the price is $2.70. In that case, you may want to exit early since all you can make more is $0.30 and you can possibly lose the $2.70, or 90% of the strike difference.

In our backtester, you can set the min and max price divided by max spread profit using the "Exit Strike Diff %" parameter. In this case you would exit if the Max Exit Strike Diff % of the price/strike difference is greater than 0.9

Here's how to set this up:

Select Long Put Butterfly in the strategy dropdown and the default parameters for days to expiration and delta of the legs will populate. In the Exits section enter a max of 0.9 and in the Leg Relationships section enter the width of the Leg1 strike minus Leg2 strike you want.

In the case of a put butterfly the Leg1 strike minus the Leg2 strike in our defaults is negative and populated that way, i.e. our default 'L1 L2 Strike Width' is null | -2.

More reading - https://blog.orats.com/how-to-backtest-exiting-a-spread-when-one-of-the-legs-goes-in-the-money

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