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:

null

 

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

Free Trial Here

 

 

 

 

related posts

Covered Call Backtest: Finding The Best Maturity, Strike, IV, And Earnings Methods
May
28
Backtesting, covered call, buywrite, implied volatility

Covered Call Backtest: Finding The Best Maturity, Strike, IV, And Earnings Methods

We ran a large backtest to identify the best maturity, delta, call value as a percent of stock...

Read Post
Backtest Basics: Seeing The Relative Performance Of The Option Strategy To The Underlying
May
13
Backtesting, put spread

Backtest Basics: Seeing The Relative Performance Of The Option Strategy To The Underlying

Read Post

We're here, if you need us.

Still curious how we can help you?




LET'S CHAT