Backtesting spx data

Discussion in 'General Discussion' started by Venrcew, Oct 10, 2016.

  1. Venrcew

    Venrcew Well-Known Member

    Some traders comment about doing backtesting using eod spx data without option data. How is this done and how reliable is the backtesting? Without the option bid ask data and volatility data how can they use only spx eod data to do option backtesting?
     
  2. garyw

    garyw Well-Known Member

    IMHO: I think it depends on the accuracy required of the user. That in turn is a function of what they are attempting to do specifically.
    One would think that if someone doing that, also incorporates SKEW as well as VXST, VIX, VXV, and VXMT for term relationships, the simplistic accuracy could be greatly improved (over no IV data source).
     
  3. Venrcew

    Venrcew Well-Known Member

    What the traders referring is doing backtesting option using spx eod price without volatility data. Are they backtesting using theoretically price? They is also one software saying their software allow backtesting option trades using eod price data without volatility. Wonder how much approximation would the backtesting compare to real
     
  4. ACS

    ACS Well-Known Member

    What exactly is the EOD data? If it's just the last price then it is useless. If it is a reliable settlement that reflects where the options were actually trading then it just might be useful.
     
  5. Paul Demers

    Paul Demers Well-Known Member

    I believe the EOD data reflects the daily settlement price which is 15 min after the close.
     
  6. garyw

    garyw Well-Known Member

    I think Venrcew is saying SPX EOD NOT SPX options, but implying backtesting SPX options and ignoring all IV/VIX, etc. (Correct me if I am wrong)
    IMO: Ignoring the supply/demand for the options (the inference from ignoring all implied volatility data) will result in backtest results of no value to traders that focus on option income related trading. (or any option trading I am familiar with) However, if they are attempting to compute the option prices using some model, such as BSM, the value they supply for the "Volatility" input is the key to qualifying the usefulness of the data (assuming they do everything else correctly). I am unable to determine any value of such a backtest that ignores a primary influence of the results.
     
  7. ACS

    ACS Well-Known Member

    In order to back test an option strategy you need option prices. Those prices can come from actual trades or settlements on the exchange or from a program that creates theoretical option values. In order to create those theoretical values you need certain inputs which include a volatility value for each option being priced. There is no way to avoid that. The whole thing as described sounds very fishy to me.
     
  8. Venrcew

    Venrcew Well-Known Member

    Yes referring to spx eod data not option data. The way they say is backtesting using spx eod data but didnt detail about how they use them. Also considering they may use theoretical price but without volaility the backtest is not accurate. Btw how is using option eod data to backtest? Unless the product is liquid the option eod data may quite different from real buy sell price?
     
  9. garyw

    garyw Well-Known Member

    Venrcew: I have attempted {tried to think it through} to address backtesting by using EOD option data, and have almost decided that effort is foolish (at least for me). If I am going to buy the EOD option data, why not go ahead and spend another $800 or so and save my self a lot of agony, to get the 1min data (which should be more resolution than I need). One way to improve the intra-day accuracy for EOD option pricing could be to also use VIX open/high/low/close and Guess at the IV for the day's low and high underlying price by assuming those points coincide with the high and low VIX price respectively, then scale the EOD IV accordingly. While this will have error, it should be better than ignoring IV changes during the day. {Again, by purchasing the finer granularity data, these issues can be avoided}. I would tend to be skeptical of "them" without more info.
     
  10. Steve S

    Steve S Well-Known Member

    I assume we're talking about computerized backtesting and not manual, otherwise just use ONE or OVue. Computerized backtesting with only underlying prices (and maybe VIX or some other non-option prices) might be slightly better than worthless for very simple strategies like single options, straddles and strangles, but still very close to worthless. For any strategy with spreads, it would be worse than worthless.

    Computerized backtesting with EOD option mids, plus all supporting data to give you the real skews, can be very fruitful; I know because I've done it and learned a tremendous amount. But since the data is so cheap, even if I were determined to only look at one time per day I would eschew the EOD data and buy some data where I could take something like the 3:00 PM EST chains.
     
  11. garyw

    garyw Well-Known Member

    Steve S: Thnks for your input. Am I correct in assuming after purchasing the Historic option 1min data for SPX options, you also have the yearly subscription to keep your data current? (nightly downloads or something?) I'm considering similar, so appreciate your comments. I'm ready to throw in the towel on getting OV to backtest.
     
  12. Steve S

    Steve S Well-Known Member

    Right Gary, I'm currently working with LiveVol 1min with yearly subscription, but have not yet hooked it into the backtesting code base I developed back in 2013 for EOD data. Right now I'm most interested in doing basic historical statistical studies with the data, and hooking it into a code base for producing current live charts for real trades I have open ... that's going well; the data is quite clean and easy to process and keep current.

    But if you've never done this options data stuff before, don't begin until you know what you're getting into! It's "easy" if you're skilled with processing terabyte datasets and know the ins and outs of working with options data, but "easy" still means taking a month or two off from your preferred hobbies to write the code for handling and processing the data.
     
  13. Norm

    Norm Member

    I've recently started using AlgoNET Explorer for my automatic backtesting. It's made by the same people who created ONE. It provides historical intra-day data down to 5min intervals for all symbols so I don't have to maintain my own database (which I have done before and was a lot of work as Steve S said). I prefer this way because I can just concentrate on building my strategies or analyzing market movement. I mainly use it with SPX and RUT although they seem to have most symbols available. I write my code in C# but VB and wizards are possible too. The reporting is great and really helps me to see what's working and what's not with my strategies.

    Is anyone else using this who would be interested in starting a forum to share backtesting ideas or strategies?
     
  14. Steve S

    Steve S Well-Known Member

    Norm, can AlgoNET handle basic rules like rolling a fly structure up or down when a price point is hit, and contracting a structure to reduce risk when a DTE point is hit?
     
  15. Norm

    Norm Member

    Yes it can do both of these (rolling and changing structure) based on your own criteria being met (DTE, DIT, IV, profit/loss, position or individual leg Greeks etc). The wizard provides some useful examples and you can quickly copy the code that it generates and add your own rules. I'm currently developing an advanced strategy to manage by the Greeks.
     
  16. Steve S

    Steve S Well-Known Member

    Sounds really good Norm ... based on what you are saying and considering the immense hassles of building one's own database and huge time investment of writing one's own backtesting code, I would recommend trying AlgoNET first before building everything from database on up, for anyone who is primarily interested in backtesting.
     
  17. Norm

    Norm Member

  18. Steve S

    Steve S Well-Known Member

    Probably most of us who have ONE have looked at that web site before ... I took a look again just now and it looks like not much new going on (in some kind of beta) ... can you relate any specifics about how easy it is to get on board with them, and what the costs are?

    Also, since you're interested in starting a forum it sounds like you aren't holding your results close to the vest ... can you give an example or two of strategies you have tested, what kind of results you got, and how the basic reporting is structured?
     
  19. garyw

    garyw Well-Known Member

    I have NO experience with "processing terabyte datasets" and that is one reason I have not bought the data. I have coded a mechanism (with Perl) were I can review my trades using TOS OnDemand (and realtime) which has access to the data I need, but is almost as painful as dealing with OptionVue for waiting for the date/time changes to update from TOS and some RTD opportunities with Excel. -- For some time, I have thought I could calculate what I needed faster than trying to access it in a huge database -- While I have learned a lot, I think using the data will simplify my efforts and make debugging a bit easier. My plans would be first to merely extend this to use ivol data instead of TOS, so I can control the timeline from the code, instead of manual with OnDemand, OptionVue, and ONE. I have some familiarity with working with options data (more than some, less than others I imagine).
    Any ideas on pricing for AlgoNET, or when it will be avail for mere mortals? It sounds too good to be true for capabilities.
     
  20. Steve S

    Steve S Well-Known Member

    Nothing beats being in complete control from raw data on up ... just a question of how much work you're willing to do to get there and stay there. If you decide to try LiveVol I could tell you a few more things about it that would be useful.

    Actually it's quite "easy" to code up a backtester, so definitely not "too good to be true" ... but I say "easy" in the same sense as above ... if it's your hobby then definitely do it yourself, otherwise weigh the costs carefully and consider something like AlgoNET.
     

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