Backtesting
Monday, February 25th 2019
How to Backtest Custom Multi-Leg Options Strategies
Discover how to use the ORATS backtest scanner tool to combine options backtested strategies and construct custom multi-leg trades.
Summary
Learn how to use the ORATS backtest scanner tool to combine multiple backtested strategies and create custom multi-leg options trades. By selecting and weighting different strategies, traders can create more flexible and unique trades, such as a collar strategy. The resulting returns and Sharpe ratio are usually an average of the combined strategies. Check out the video tutorial and experiment with different combinations.
The ORATS backtester is designed to allow the combination of multiple strategies. With this feature, custom multi-leg options strategies can be made.
Here's how to combine multiple strategies. First, run two or more backtests. Click the box next to the backtests to combine. Select the blue 'Combine' button.
Enter the weightings of the strategies. In this case we entered 100 for both strategies. For example, below the covered call strategy, buying a stock and selling a call, is combined with a long put. The result is a collar strategy. The combine method gives more flexibility to the collar strategy, for example the put can be longer dated than the short call.
The resulting returns and Sharpe usually comes out as an average of the two.
Weightings can be varied. Many more strategies can be combined.
Give it a try! Experiment.
Check out the video here. At 5 minutes and 12 seconds in, the combining method is shown. Also, in the video there is backtesting with IV rank, Earnings (2:30 minutes in), Custom Dates (3:45), Combine (5:12)
Here's a post on backtesting short-term SPX options.
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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