5/22/2020 Check Options Strategies With Backtesting - Option Research & Technology Services - Medium

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.

Matt Amberson Follow

Oct 28, 2019 · 3 min read

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:

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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

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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.

CFTC rule 4.41 — Hypothetical or simulated performance results have certain

limitations. Unlike an actual performance record, simulated results do not represent
actual trading. Also, since the trades have not been executed, the results may have
under-or-over compensated for the impact, if any, of certain market factors, such as lack
of liquidity. Simulated trading programs in general are also subject to the fact that they
are designed with the benefit of hindsight. No representation is being made that any
account will or is likely to achieve profit or losses similar to those shown.

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Options Trading Volatility Skew Dividend

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