Brooks and Adam too...
Clearly there is still much to be desired with public (non-proprietary) backtesting software,
especially in context of strategies involving options. There seem to be several outfits out there
geared towards that, such as: ORATS, TradeStation, OptionStack, eDeltaPro, etc.. Perhaps, either one of you can take the lead on a new thread dedicated exclusively to a comparative discussion of he available Backtesting outfits (for the retail guy)....keeping in mind that the quality of the available data is paramount. BTW, I personally see no problem in working with EOD data, as the backtesting is meant to evaluate performance (a posteriori) on a 'frozen' time-point of the data-- make it to be EOD, or Noon time or at 9:35am--that should not matter much, as long as it is consistently preserved throughout the study..
Stam
Stam
My firm, ORATS, uses near end-of-day market data where we snapshot all bid-ask options and stock prices 14 minutes before the close. I was a market maker and saw what happened to the prices as the close approached, widening out. We apply a smoothing algorithm that produces good theoretical values and greeks.
Using a filter, you can avoid backest trading in markets where the bid-ask width divided by the stock price is greater than a certain percentage, I usually use 0.5% however in VIX it's 1.5%.
You can also stagger trading, for example, trading a 90 day strategy every 30 days. You can set the study start date and end date to test out of sample. You can also control the dates to enter and exit a trade.
If you use technical indicators, you can use those Entry Indicator Triggers along with volatility measurements like only trading a strategy when the IV Rank < 50, VIX price < 30 and MACD > 0.
You can combine strategies in various ratios. For example, for hedging a stock portfolio I use long term, way out of the money puts on all the time and exit when the profit > 300% when I roll out again to a certain Spread Yield Percentage (options price / stock price) so I don't spend too much when the market tanks and IV goes up. In addition, during times of market calm (contango > .25 and VIX < 20), I use a put 1x2 ratio - buying 1 OTM put and selling 2 farther OTM puts. I combine these strategies together to over hedge using the puts by using a combine ratio > 1 and have the put 1x2 at 1.
Our scanner uses the same filters as the backtest and adds assessing trades based on a distribution forecast, historical volatility forecast, and smoothing forecast of options prices.
There are many more features. Let me know if you want to use something that you don't see here.
