Backtest ‘Non-traditional’ Options Spreads Like a Diagonal Call Ratio

Discussion in 'Options' started by Matt_ORATS, Jul 29, 2019.

  1. Matt_ORATS

    Matt_ORATS Sponsor

    There are times when you want to backtest a 'non-traditional' options spread as a package rather than as a combination of two or more strategies.

    The Combine feature allows users to simulate a vast array of strategies but managing exiting the package on a delta becomes tedious.

    We had a question regarding a backtest from a client trying to run ‘non-traditional’ spread. The technical name would be a diagonal call ratio and the premise of the strategy is to buy 1x 50 DTE 50 delta call vs. sell 2x 20 DTE 30 delta calls. The reason they are running into issues is they want to roll this trade as a spread package and set roll parameters based on delta of the spread or the DTE of either leg of the spread.

    They said, "Since it is not a pre-defined spread, we are not able to re-create this backtest in ORATS. Combining the 2 separate legs won’t allow us to roll based on the appropriate deltas. Any thoughts on how we can accomplish this using ORATS?"


    Adjusting leg relationships can help accomplish this task.

    First, define the days to expiration for each leg.


    Next, set the leg relationships that make sense for this test. For example, the ideal days difference is 30 so set a min max around 30, like 20 and 40.


    The results of the diagonal without exits are:


    The results of the diagonal with exits are:


    A noticeable improvement with exiting when the spread delta was greater than 0.80.

    More reading -

    Free Trial
    KevMo likes this.
  2. KevMo


    Congratulations on the functionality Matt. Good to know that good people are still building useful and unique fintech applications. Though, I have a question that has nothing do functionality if you wouldn't mind?

    Trader and Fund Mgr (one of my few marketable skills) as part of one of my day jobs ...but further, as an investor in certain private investments and someone whose team is actively building fintech types apps (non-competitive w/orats), I'm currently fascinated by UI/UX of all the various new(er) apps in the marketplace(s).

    I'm curious why you choose the color Orange? I like it, especially combined w/the overall simplicity of It's unique in the space. Memorable too. Perhaps that's part of it.

    Any and all of your comments are welcome.

    TommyR likes this.
  3. Matt_ORATS

    Matt_ORATS Sponsor

    Why Orange? Ha, thanks for the question.
    First, with a name like ORATS we need to have a bold statement and the first three letters are the same.
    Second, apparently candy companies like orange too. You may not believe this but on the back of a Reese’s peanut butter cup it reads: “Orange background color is a registered trademark.”
    While we are on the marketing subject: Did you get the 'O' logo significance? If you understand payoff pictures for options strategies, the O is a combination of an iron condor payoff picture and a reverse iron condor payoff picture.
  4. KevMo


    Wow, I didn't know one could trademark a color. What, Crayola was asleep at the wheel? :D

    I did notice the "O" Very clever Matt!:thumbsup: