Backtesting Stock Option strategies

[JamieLarin]

Hello,
I am a bit new to options trading and I have a few ideas how to start my trading. I have used some stock screeners to find a good optionable stocks. I am also using these to build vertical credit spread strategies where reward is 10-20% vs risk
and breakeven point is far from existing stock price. I am also considering using simple Long Call options but not sure which strategy is better.

Does any one know a good tool for backtesting option strategies? Ideally not expensive and simple to use.

 

[aeromir]

The problem with option back testing is the sheer number of strikes and expiration months for a data provider. I purchased a few thousand dollars of option data several years ago and built a simple tool for my needs, but it was not easy to use or keep updated.

A friend of mine started Quanty Carlo, which is an option back testing tool. They are in beta at the moment but should have something released later this year. It has a really nice looking interface and is probably going to be a fantastic tool. I know it won't be free...probably under $50 or $100 per month to use it.

If you have OptionVue, OptionNET Explorer or a brokerage account at Think Or Swim, you can use their option back testing tools to back test. It's more manual than Quanty Carlo (which isn't available quite yet).

 

[WklyOptions]

Hello,
I am a bit new to options trading and I have a few ideas how to start my trading. I have used some stock screeners to find a good optionable stocks. I am also using these to build vertical credit spread strategies where reward is 10-20% vs risk
and breakeven point is far from existing stock price. I am also considering using simple Long Call options but not sure which strategy is better.

Does any one know a good tool for backtesting option strategies? Ideally not expensive and simple to use.

Hi,

With ThinkOrSwim, you can open an account and not even need to fund it at first. You will get real-time quotes, functionality of its TOS platform.

It has the ThinkBack historical data - which is primarily focused on end-of-day data. For quick backtests that require only closing bid/ask data, this feature is more than adequate.

The TOS OnDemand function allows for the user to set a specific date and then it will scroll thru forward from that time point. It is very good - you can enter trades as it comes up and then see how the options spreads unfold thereafter. It provides bid/ask data, Greeks, etc., on an intraday basis. It does require a good amount of memory allocation if you go far back and also look at multiple stocks and ETFs.

Good luck - always a good idea to backtest your ideas/strategies. Don't throw away your hard-earned $$$ on hunches, rumors, etc. Profitable trading especially in options is highly focused precision-based planned endeavor!

Regards,

WklyOptions

 

[JamieLarin]

Ok, I spent some time on this topic and it looks like I should learn more about options trading, especially about credit spreads. (Does not look easy)
TOS platform looks very good but super complex,
I went through this video and still wrking on replicating details:

I also found a demo of another tool which seems a bit easier to understand backtesting but very few strategies there

Thanks WklyOptions, I totally agree about precision-based trading, I also need to start trading soon and analyse my positions.
Could someone recommend a good fundamentals analysis tool? I think fundamentals are as important as technicals for continuous trading.

Thanks everyone!

 

[WklyOptions]

Could someone recommend a good fundamentals analysis tool? I think fundamentals are as important as technicals for continuous trading.

Hi, Jamie,

Although I trade 95% off Dominant Trend analysis of individual stocks, ETFs, and forex pairs, I do maintain awareness and alerts on key economic and fundamental news items.

In the few times I've used Fundamental analysis as part of my stock-screening filters, I have found "finviz.com" very helpful.

Finviz.com offers free screening tools - including filters on (a) earnings, (b) margins, (c) debt, (d) volume, (e) volatility, etc.

Give it a try - it has most of the more-common fundamental analysis items.

Good luck.

WklyOptions

 

[lloydbee]

Hi,

The TOS OnDemand function
WklyOptions

+1 on this... although I am not a fan of back testing as I believe in forward testing through Virtual trades due to the nature of the markets always changing.

Ok, I spent some time on this topic and it looks like I should learn more about options trading, especially about credit spreads. (Does not look easy)
TOS platform looks very good but super complex, Thanks everyone!

Although at first TOS does look overwhelming BUT you should soon learn to navigate it and for an Options trader it IS simply THE BEST. The amount of info that you can access on one screen saves you lots of page refreshing and loading that other sub standard brokers have to do. Its a fast platform, stable and their pricing is the fairest I have ever seen or traded with.

You can keep things simple in TOS by just using the Analyze tab for all Options info and the Flexible Grid tab for charts. You can fully trade from just these two tabs alone.

If you have any 'how too'questions feel free to ask, I have been a TOS client for a while now and know the platform reasonably well and I am also a 100% options trader through and through.

Lloyd