Strategy Optimization

The speed of the Volatility Backtester enables rapid optimization of your options strategies.

Optimizing Backtest Parameters

As an example, we will look at backtesting straddles on Apple Inc. with a technical indicator entry condition of the 50-day moving average crossing below the 200-day moving average, a profit target of 50%, a stop loss of 50%, and 30 days until expiration. The thesis behind this trade is that Apple volatility might increase after the short-term 50-day moving average breaks below the longer-term 200-day moving average, and this backtest is designed to test this premise.

The backtesting results immediately show you that purchasing these straddles would not have been profitable. However, after each backtest completes, the inputs you set are saved within the Customize Backtest section, allowing you to quickly modify a few parameters and see how results improve or worsen. For example, clicking "Edit Backtest" and modifying only the days to expiration to 90 shows dramatically different backtesting results with significant historical profitability. This shows that the moving average cross over event is historically indicative of more volatility than the market expects over 90 days than 30 days. From here, other backtest parameters can also be optimized such as the profit target and technical indicator entry condition to find the strategy that maximizes reward, minimzes risk, and matches your investment thesis.

This method of optimization is extendable to virtually any options strategy and helps you quickly find effective options strategies.