Backtesting
Thursday, May 23rd 2019
VIX Level Trigger in Backtesting
How to use the level of VIX, or any symbol's price, to drive options trading in a backtest by using Entry and Exit Triggers to enter, exit and re-enter.
Summary
This article explains how to use the level of VIX, or any symbol's price, to drive options trading in a backtest by using Entry and Exit Triggers to enter, exit and re-enter. By setting the Entry Trigger to 'Max = 15' and the Exit Trigger to 'Max = 20', the backtest will only enter trades when the VIX is below 15 and exit if the VIX is above 20. The article also notes that the pxAtmIV is the spot VIX and the EntryStockPx & ExitStockPx in the trades section is the VIX future for the expiration solved at the time of the trade.
Here's how to use the level of VIX, or any symbol's price, to drive trading in a backtest by using Entry and Exit Triggers.
Let’s say you only want to enter a VIX trade with the VIX price below 15 and you would exit if it gets over 20 and wait until under 15 to re-enter. In our backtester the header pxAtmIV is the price of the stock taken when the options snapshot is taken. Set the Entry Trigger to 'Max = 15' and set the Exit Trigger to 'Max = 20'. That will drive the backtest to only enter trades when the VIX is < 15 and exit if VIX is > 20.
Here's what the backtest input form looks like for the Entry Trigger:
Here's what the backtest input form looks like for the Exit Trigger:
Click Submit and check the results. The trades should only enter when the VIX is < 15 and should exit when the VIX is > 20.
Note that the pxAtmIV is the spot VIX and the EntryStockPx & ExitStockPx in the trades section is the VIX future for the expiration solved at the time of the trade. So the EntryStockPx may be above 15 and the ExitStockPx may be below 20 when trades occur but the spot won't be.
For example, look at thetrade on 3/13/12: the EntryStockPx was 21.03 but why was the trade entered? Because the SpotPrice was 14.8 and the 21.03 was the associated futures price with the 4/18/12 expiration of the call.
More reading:
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.
Related Posts
