If you are wondering how to select the best option when backtesting (or scanning) given your parameters, then this is the article for you.

ORATS uses a sophisticated scoring system to choose the best option based on the parameters. We measure how far each option is away from the ideal as a proportion of the range of the minimum and maximum. We score each parameter based on how far the actual is from the ideal divided by the range of the min and max.

We choose the option has the least difference from the ideal, the lowest score.

The score is calculated as:
difference = actual option reading - ideal criteria input
range = Max criteria input - Min criteria input
score = sum of all ideal's(abs(difference)/range)

For example, let's say you have three parameters, days to expiration, delta, and spread yield used to identify the options you want. You have entered the following Ideal, Min and Maxes for the parameters.:
criteria Ideal Min Max
DTE 20 15 25
delta .2 .15 .25
spYield -.02 -.01 -.03

Here are two options that match your parameters and how we choose the best:

option1 DTE 17, delta .17, spYield -.017
DTE = 3/10 = .3
delta = .03/.1 = .3
spYield = .003/.02 = .15
score (sum) = .75

option2 DTE 22, delta .22, spYield -.29
DTE = 2/10 = .2
delta = .02/.1 = .2
spYield = .009/.02 = .45
score (sum) = .85

Since the score of the first is less then choose option1.

You might like this article next: How To Calculate Backtest Returns

Go to wheel.orats.com to try it out!

To see pricing for various levels of the backtester, go HERE.

If you need to upgrade or cancel your subscription you can do that HERE.

related posts

How to Set Up a Pairs Trading Backtest
Options Strategy, Backtesting, Data, Options Signals, volatility skew, Pairs Trading

How to Set Up a Pairs Trading Backtest

Pairs trading is used by options traders to take advantage of miss-pricing between two symbols...

Read Post
NEW! Improvements to the Backtester
Options Strategy, Backtesting, Options Signals

NEW! Improvements to the Backtester

We have upgraded the backtester!

Read Post

We're here, if you need us.

Still curious how we can help you?