Backtesting
Saturday, November 23rd 2019
Long Puts Backtest Using The Optimizer
Long puts are backtested with many different combinations using the Optimizer method.
Summary
Long put options can be an effective way to protect a portfolio, but choosing which puts to buy can be challenging. Using an optimizing backtest process, the author tested many combinations of long put strategies and found that the 500 day, 20 delta put was the most effective for their investment objectives. Further testing with a spread yield constraint confirmed these results. To learn more about this strategy, readers can sign up for a free trial at the provided link.
If you are looking to protect your portfolio, consider put options.
The positives about puts are that they are negatively correlated -- meaning they go up when the value of the portfolio goes down, and easy to understand, but the negatives are that puts are expensive.
There are many choices when considering which puts to buy to protect your portfolio. How many days to expiration should the puts be? How far out of the money? When should you exit a put?
Using our optimizing backtest process, we tested many combinations of long put strategies as shown in the table below:
For example, we tested the 90, 180, 365, and 500 Days to Expiration and 0.20, 0.10, 0.075, 0.05 Delta and exiting when the profit from the put is > 250%, 300% and 350% in all combinations.
The strategy that had the returns and best year profit objectives that meet our investment objectives the best (your objectives will vary).was the 500 day, 20 delta put.
Testing more to verify our results, we staggered the put buying and added a spread yield constraint. We got the following results:
If you are interested in learning more about this strategy, respond to request a link then sign up for a free 14-day trial and then $99 per month: Free Trial
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.
Related Posts
