@Matt_ORATS, thanks for the post. Sorry if I missed it, but how does the test handle stock being taken away at 10 delta? How often did it happen and at what price was it bought back? In bull markets large percentage of returns come from overnight/weekend gaps. Also, I didn’t see a way to subscribe to your blog on the site.
Did you backtest on the indicies and or stocks,and run the stock portion as a portfolio of 30 plus names?? Im doing the Orats trial..Matts a good guy..
Ironchef It is great to hear feedback from you and like yours. It is a lot of work to do this research and it is nice to hear that it is helping. Matt
Thanks qlai - I will add a way to subscribe. Now we have an annoying pop up that you will see once in a while. For the backtest we assumed that we would buy in the short calls if they were in the money. This happened about 12% of the time (the win% being 88%) which is about what you'd expect from the delta of 0.10.
Thanks Taowave I ran the test on these symbols as a proxy for the names in the S&P500 since they made up 30% of the weighting: MSFT, AAPL, AMZN, PFE, JNJ, T, GOOG, BRK_B, JPM, V, PG, UNH, INTC, VZ, HD, MA. I did not backtest the indicies nor run the stock portion. What would you like to see: these stocks run with the strategy, combined by their weighting, and shown?
Hi,Im still formulating what it is that I would really like to see...As i mentioned before,I am a when running options simulations,I prefer to see equal delta comaparisons,1 90 delta put vs 2 45 delta puts..With that said,if I was going to run a basket like you did,I would probably equal weight the portfolio.. My comment was in responce to Chef's "In a run away bull market, it is better to just buy calls" From my limited testing with Orats,buying calls on the SPY was mediocre,and I was wondering if Chef had run a simulation that combined the results of 30 large cap stocks as you did or a mix of large cap/small cap
No, I have not signed up for ORATS yet. I am very simple minded, just coded up the standard BSM after I "graduated" from U of Colorado Coursera course on excel VBA, applied it to the downloaded 25 years SPY historical data, input my own simulated IV and ran the codes. Took me months to code a BSM subroutine, months to figure out how to code a do-loop, weeks on If logic, months to integrate all the various parts, months to debug.... I was going to code something similar for butterfly but just thinking about it is . Took 30 minutes each to run one stinking scenario on my MacBook... very painful. It was my "day job" for the last several years. I had no way to know if my codes were free of bugs but since the general trends of the results were quite similar to OP's conclusions I think the codes are OK. Of course you cannot trust my absolute numbers since the IV were wrong, it is an academic exercise. I am very very impressed with OP's ability to simulate and calculate all those results.
In the money by how much and for how long? I'm just curious if you have to factor in a scenario where the stock get called away on let's say Friday and you need to re-buy it on Monday. I guess that would be too rare to worry about.