Option vs Spot trading backtests

Another question i would like to ask, is if i only buy atm vanilla options, how much off would i be if i used ATR to determine the cost i would have been charged for an option, holding the time variable constant.

I understand that atr has no relation to implied volatility, but would it give at least a 70% accuracy.
 
Quote from gkishot:

Of course in futures it's a lot more rigid than in OTC FX. What I am saying is that I believe that they price it off the futures contracts price not spot price ( in FX they are called forward contracts ). Basically they are doing that to account for the overnight interest.
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Yes, that makes sense. Can i get historic forward prices and then create a backtest off of that?
 
Quote from gkishot:

I am just curious why you can't use historical FX spot data for backtesting? Does your strategy work with spot FX?
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yes, i have backtested and have been trading the strategy for 3yrs now. So far it seems to work better with options, less trades, less losses, similar profit profile after expiry except for the cost of the option.
 
Quote from Nashequilibrium:

yes, i have backtested and have been trading the strategy for 3yrs now. So far it seems to work better with options, less trades, less losses, similar profit profile after expiry except for the cost of the option.
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After you backtested your strategy successfully with spot historical data I don't believe there is a need to backtest it with options.
The transition to options from spot is straightforward:

1. Sell puts if you get bullish signal.
2. Sell calls if you get bearish signal.
3. Sell straddles if you are neutral.

Just remember that FX options have very wide bid/ask spread.
 
Quote from gkishot:

After you backtested your strategy successfully with spot historical data I don't believe there is a need to backtest it with options.
The transition to options from spot is straightforward:

1. Sell puts if you get bullish signal.
2. Sell calls if you get bearish signal.
3. Sell straddles if you are neutral.

Just remember that FX options have very wide bid/ask spread.
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I only want to buy options, i don't want to get you making money of premiums. I prefer catching the trend and taking all those little losses along the way.
 
Quote from Nashequilibrium:

I only want to buy options, i don't want to get you making money of premiums. I prefer catching the trend and taking all those little losses along the way.
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I don't know of any advantages of long options over spot.
 
Quote from gkishot:

I don't know of any advantages of long options over spot.
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Felt the same way yrs ago, studied all i could about options theoretically about 6yrs ago and felt that going directly spot, but i have learnt a few tricks along the way which has changed my opinion. This is not true for all conditions just depends if it can be tailored to your strategy. The only issue is getting that confidence you get from backtesting a spot system and putting it through hell and seeing if it will survive.
 
Quote from gkishot:

I don't know of any advantages of long options over spot.
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I remember fischer black once saying that he has no idea why someone would not trade options as the opportunities are endless, which led me to reading his paper titled "the holes in the BS model" but i didnt have a use for it then.
 
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