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Backtesting

Wednesday, October 30th 2019

Check Options Strategies With Backtesting

Backtesting is a good way to test options strategies interesting to you. Here we test short puts in single stocks.

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Summary

Backtesting is a good way to test options strategies. A short put strategy from

You may see an options strategy with good returns. But how can you get more confidence in the results?

One way is to acquire the rules for the strategy or deduce the rules from the list of trades.

One such strategy I saw that had interesting returns was from the site https://www.smartoptionseller.com/track-record

Here were the results posted:

 

These results look pretty good. I can tell right off that he has some filtering of trades that he does not explain.

There is an interesting way he is rolling losses. When the loss reaches a certain amount he exits the original trade. It looks like he will find an option that has a similar premium to the one just exited. He is changing the rules for finding options when he is rolling. We do not have this feature in the online backtester (we do in the backtest API).

I did a quick backtest of the smartoptionseller.com strategy based on the trades record. I used the stocks listed in 2019, selling a put 100 days out with a delta of .05, minimum price of $0.20 and exiting when the price fell below $0.03 or when the loss was over 400%. Here are the results:

 

Strategy Win Rate 91.6%

The results of my backtest we reasonably close to the results posted on the smartoptionseller site. 

I decided to test my version of this strategy. I tested some other rules and here's a good set I found:

  • Using the same symbols in the graphic above
  • Days to expiry 75 (a little shorter than smartoptionseller)
  • Delta of the short put 0.025 (farther out of the money)
  • I used a spread yield (option price / stock price) of -0.25%
  • Max ask price implied volatility of 50%
  • Min bid price of $0.075

Results:

 

Strategy Win Rate 97.9%

These results have better stats.

Here is a link to the backtest.

 

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.

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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.
Interactive Brokers is not affiliated with Option Research & Technology Services, LLC and does not endorse or recommend any information or advice provided by Option Research & Technology Services, LLC.