Backtesting options strategies

Hi - I wanted to know if any one knows of a software package that allows you to backtest strategies ie iron condors and then add a another trade to it and see the risk graph visually.
I have tested the strategy on TOS but unfortunatly thinkback does not allow you to see the risk graph visually on their backtester. I was thinking of purchasing option vue but it seems expensive. Any help much appreciated

rgds

smadaher said:

Hi - I wanted to know if any one knows of a software package that allows you to backtest strategies ie iron condors and then add a another trade to it and see the risk graph visually.
I have tested the strategy on TOS but unfortunatly thinkback does not allow you to see the risk graph visually on their backtester. I was thinking of purchasing option vue but it seems expensive. Any help much appreciated

rgds

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Hi,

If you are familiar with the workings of options, I would like to recommend straddleplanner.com.
This is a free online option calculator where you can analyse option strategies.
Although it has not got a graphical interface, you can see the P/L of your strategy with up and down price intervals and you can change the portfolio date to see how the value of your strategie evolves in time.

The site contains a simple calculator for pricing one option or you can try the pro version where you can enter entire strategies including underlying stock positions.

Hope this will help you!

Goodluck

Cheers Ajj - Thanks for the advice

Please try http://optiontimeline.com

Besides standard features like option simulator, B&S calculator, etc, you can use the Time Simulation, which allows you "go back in time", build a strategy, and test the behavior over time.

I'm looking for a backtester where I can enter a strangle in a certain month, then progress time forward making adjustments to the initial trade as I go, and finally see what the end result would have been at expiration. Does option timeline do that, or does anyone know of a simulator/backtester that does?

OptionTimeline said:

Please try OptionTimeline - Options Simulator - Main page

Besides standard features like option simulator, B&S calculator, etc, you can use the Time Simulation, which allows you "go back in time", build a strategy, and test the behavior over time.

Click to expand...

Relative to true options backtesters:

We are suprised that there are not more true options backtesters available as it is a important tool for trading sytem development.

A time decay or a underlying movement test of a single isolated options combination or position is NOT a backtest of a options strategy, but just a time decay or a "what if" test. You need to see how a options strategy, say a covered call, aggregates as a equity curve over time with MANY positions taken, say over 10 years, before even beginning to accept that the options approach may have a general, robust, positive expectation. That requires an underlying trading system to dictate the entries and exits over that 10 years.

A backtest can use: 1. Pure models based on VSD, Hybrid models based on IV, or complete options data look up engines based on real bid/ask. Adding a learning engine to just one of the above is a massive effort, however our experience shows that it is well worth the effort as long as the inaccuracies of the model are understood. (See demo 35, 14 and 13. Trading System Lab: Demos)
PS: The newer engine runs 800% faster than this one.

If you want to read more information on true backtesters via options data base engines please take a look at my options bata base white papers here:

Trading System Lab: Whitepaper

All of the above information is free on the site. Enjoy.

Sincerely, Mike Barna

Agree.
I see no service providers that backtest the way options strategies need to be backtested to gather a true expectation. These packages do not design a options trading strategy but only "go back in time"
to see how the options combination moves over time, that's not a backtest. Once you have a trading strategy, only then can you place a options position on those positions (hundreds or thousands of them) backtest the p/l back 10-20 years, aggregate the trades and produce a sharpe ratio. I don't see SHARPE ratios mentioned in these packs mentioned. There are only one or two packs that we see that can come close to what really needs to be done. Again, a time decay is NOT a backtest. To see what I am talking about see the following OPTIONS BACKTESTS USING REAL OPTIONS DATA AND A UNDERLYING SPX TRADING SYSTEM:

http://www.tradingsystemlab.com/files/An Options Data Base Engine.pdf

http://www.tradingsystemlab.com/files/An Options Data Base EnginePart2.pdf


This is what we are looking for.

TSL machine designs options strategies, backtesting a thousand times a second, AND places the option combination model at hundreds or thousands of places on the underlying. Not a plug for TSL, just that we are constantly looking for API to connect with and there are basically none out there. The computational requirements are high, yes, compared to what these service providers mentioned use to do options analysis, but computational throughput is now allowing machines to create strategies automatically, and write code, something 20 years ago we thought was not really possible.

PS: You have to have a good underlying strategy to even begin truely backtesting an options strategy.

We are still looking.....

edwarddevis said:

There are lots of service providers on the internet you can find them independently here. if you well-known options so you should try it, It is a comparatively easy stuff to backtest a strategy trading cost based prospect: a small spreadsheet know-how or, deteriorating, any of the scores of software packages now on offer will get the job done. But testing the historical performance of well-defined options strategies involves much more complexity, and imposes significantly greater data requirements.

binary options brokers

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Backtesting is of limited use, as implied volatility relative to historical volatility is in a constant state of flux, and the Greeks do not behave unilaterally. Quants and HF traders can take advantage of the high speed of their clever systems with stocks, but it don't cut the mustard in the real world of exchange traded options. Especially when I am the market maker.
Algo systems always seem to follow me into a trade, as bid/offer is the result of a personal opinion.
OTCs may well function differently, but I'm just a dumb retail trader

IV based models do not cut it. The IV limitations is exactly why we used real BID/ASK data for the backtest, no models. We assumed buying on the ASK and selling on the BID. A high average trade will cover any realistic slippage.
Sounds like those algos are just following the moving spread with their order book based models.

Still looking for a true backtest engine out there.

Windlesham1 said:

Backtesting is of limited use, as implied volatility relative to historical volatility is in a constant state of flux, and the Greeks do not behave unilaterally. Quants and HF traders can take advantage of the high speed of their clever systems with stocks, but it don't cut the mustard in the real world of exchange traded options. Especially when I am the market maker.
Algo systems always seem to follow me into a trade, as bid/offer is the result of a personal opinion.
OTCs may well function differently, but I'm just a dumb retail trader

Click to expand...

TSL trader said:

Still looking for a true backtest engine out there.

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Try oscreener.com options backtester . It does the trick and screens through entire options market and allows you to backtest selected strategies. I use it for backtesting and validating ideas with bull put spreads and long call option strategies.

hi, i just posted this on another thread, but i thought it might be useful here too.

i haven't come across any good historical options or futures data. what i've done in the past that works pretty well is following:

1.) download historical data for underlying instrument (usually more accessible)
2.) calculate theoretical option and futures prices from a defined set of parameters
3.) simulate the trade using the theoretical prices
4.) summarize the results
5.) adjust the parameters used to calculate theoretical prices (e.g. increase volatility by 10%)
6.) repeat steps 3-5

of course it's not ideal, but it has the benefit of mapping out how expensive the derivative would have to be before the trade becomes unprofitable. MatLab and R are useful for this sort of thing.

good luck

TSL Trader, when you say that your engine is 'learning', what exactly do you mean, some neural network algos?

Hi, I saw your post about the free backtesting site. But I do not see a link or web Address, could you please send it to me. It would be much appreciated.

http://optionsinvesting.co.uk I just post dumb, real trades, each week