There are times when you want to backtest a 'non-traditional' options spread as a package rather than as a combination of two or more strategies.
The Combine feature allows users to simulate a vast array of strategies but managing exiting the package on a delta becomes tedious.
We had a question regarding a backtest from a client trying to run ‘non-traditional’ spread. The technical name would be a diagonal call ratio and the premise of the strategy is to buy 1x 50 DTE 50 delta call vs. sell 2x 20 DTE 30 delta calls. The reason they are running into issues is they want to roll this trade as a spread package and set roll parameters based on delta of the spread or the DTE of either leg of the spread.
They said, "Since it is not a pre-defined spread, we are not able to re-create this backtest in ORATS. Combining the 2 separate legs won’t allow us to roll based on the appropriate deltas. Any thoughts on how we can accomplish this using ORATS?"
Adjusting leg relationships can help accomplish this task.
First, define the days to expiration for each leg.
Next, set the leg relationships that make sense for this test. For example, the ideal days difference is 30 so set a min max around 30, like 20 and 40.
The results of the diagonal without exits are:
The results of the diagonal with exits are:
A noticeable improvement with exiting when the spread delta was greater than 0.80.