Hi, I need to forwardtest shortterm option short-selling and let the options expire. Can this scenario be tested using the IB paper trading account? Thx
If you're looking at selling naked calls and puts, paper trading won't prepare you for the uncertainty of live trading. Like how to deal with getting assigned or not being able to sell at the spread you have in mind. Limited gains, unlimited risk. Start small so you can afford to deliver what you sell. Best alternative is covered calls and puts.
Most inexpensive way to do it is base it on underlying, I don't have account with IB, but I don't believe they keep much if any option data? You don't want to do naked anything unless as TradeCat points out covered calls or been in trade more than few days. In my case I always first put on Credit spread, at some point it is going my way, then unload long option, cause broker is going to increase margin once you get out of the long side. But most of the time, the getting in plus three bars holds most uncertainty of any trade.
I have to prepare for naked short-selling and holding the position till expiration. Then the positions will be automatically closed at expiration. Most options traders close their positions before the expiration, but in my special case this is not the case.
Can you pls eloborate on this b/c I don't understand what you mean. I'm short-selling DOTM; I start with just 1 leg so I have some time to decide about the other leg, mostly it is not needed at all...
If you going to backtest options, data is very very expensive if you intend to buy intraday data. Whereas if you back test using the stock or ETF, day of expiration, you can figure out if you were profitable.
As clearly stated in the initial posting: it's about forwardtesting of options short-selling, ie. live-trading in a paper acct. You can't test that reliably with just the underlying. And: I've to make a list of all the trades for verification by a 3rd party, so alternative testing methods like you suggest can't be used in this case. But thx for the suggestion.
If the options are ITM most options traders will close the position on or before expiry. If the options are ATM/OTM then it can be 50/50 whether or not the position is closed on or before expiry. ITM options don't have much bang-for-your buck so they have little value to the option trader, while ATM/OTM options still have lots of volatility and are beneficial to both sellers and buyers.