For spread strategies, you can now define the premium compared to the strike difference for trades you want to enter. For example, if you trade a short put spread, you may want to compare the results of trading a premium level of 10%, 25% and 40% of the strike difference.

Here's how you set up the backtest for this comparison.

I used the sector SPDRs in the Symbol section, Strategy is Short Put Spread, Days to Expiration ideal is 30, deltas are -0.30 and 0.15, and the Entry Strike Diff Percentages of -10%, -25% and -40%. Here's the -40% min/max.

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You won't find many short put spreads meeting the 40% of strike difference in SPDRs as evidenced by the many zeros in the monthly returns.

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However, the 25% and 10% were in trades nearly 100% of the time back to 2007.

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Here, the 25% strike diff annual return 1.48% worked better than the 10% kind returning -1.06%.

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Here's a trade example at 10% premium to strike difference. The net premium is $0.202 and the strike difference is $2 or 10.1% premium to strike difference.

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Premium to strike difference is a nice tool to add to your analysis of strategies. Give it a try and backtest for free today: Free Trial

You can also exit on strike difference. https://blog.orats.com/backtest-exiting-an-options-spread-with-price-divided-by-max-profit

 

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