Backtesting
Tuesday, March 23rd 2021
Options Trading Using Stock Price vs Moving Average
Backtesting and scanning using a trigger of the price of a stock vs its moving average can be accomplished in ORATS Wheel.
Summary
ORATS Wheel offers backtesting and scanning for options trading using a trigger of a stock's price versus its moving average, with the ability to use a different symbol as the trigger. The article provides an example of setting up a backtest and scanner for VXX trades triggered by VIX levels compared to its 20-day moving average, and includes screenshots and a link to a backtest report.
Triggering an option trade using the current stock price versus its moving average is available in the backtester and in the scanning applications at wheel.orats.com
You can even use a different symbol to trigger an options trade.
Here's how to set up the backtester and the scanner for an example using VIX levels to trigger a VXX trade. Let's say you want to buy a put in VXX when the VIX is below its 20 day average.
First you set up the put you would like to trade for days to expiration and delta. Then you set the entry trigger.
Select Edit the current trigger and type in "price" into the search bar to find the stock price at time of the IV calculation or pxAtmIV.
Enter "VIX" in the symbol input box, and click the box Define Ratio.
Click Use Technical Indicators and scroll down to SMA. Again, enter "VIX" in the symbol input box, change the period to 20.
Since you want the ratio of the current price to be less than the 20 day average price, type "1" in the max and remove the min. This will trigger a trade in your VXX put anytime the VIX price divided by the 20 day moving average of VIX is less than 1.
If you wanted to trade when the VIX > 20 day average of VIX, then you would set the minimum = 1 and the maximum = empty.
There is also Exit Triggers where you could exit the put if the VIX were at some ratio of the moving average.
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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