Ever say to yourself, “I wonder how well my option strategy would work if it had been used over the last year, two years, etc.?” Well, at PowerOptions, we asked the same question and then developed an option “back-testing” tools to answer the question – and we also got a patent for the technology. The details of the patent can be viewed at this link.
For example, suppose an investor wanted to know how well the Covered Call strategy would have performed over the last year using the constraints shown below:
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- stocks included in the S&P500
- stock price near lower Bollinger band
- stock price in an uptrend (100 day moving average > 200 day moving average)
- days to expiration < 45
- % If Unchanged > 2%
- Position At-The-Money
- Position selected on Monday following option expiration
A Covered Call position may be entered by selling a call option against an existing or purchased stock. The position can be considered analogous to leasing a house with an option to buy.
Using PowerOptions’ patented back-testing tool with the constraints listed above for the covered call strategy over the last year, the following results were found:
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As can be seen, the strategy returned 12.7% over the last year which did not beat the 14.3% of the S&P 500 index, but was fairly close. And, with a little more tweaking, maybe the strategy can be fine tuned to beat the S&P 500 index, such as removing stocks with an upcoming earnings release or only including stocks with a high % dividend yield, etc.
A really powerful feature of PowerOptions’ back testing tool is the capability to test 22 other strategies in addition to the Covered Call strategy. The list of available strategies includes:
- Covered Call
- Naked Put
- Calendar Call
- Bull Put Credit
- Long Call
- Bear Call Credit
- Naked Call
- Iron Condor
- Long Put
- Collar
- Covered Combination
- Bull Call Debit
- Calendar Put
- Long Straddle
- Short Strangle
- Iron Butterfly
- Bear Put Debit
- Covered Put
- Long Strangle
- Short Straddle
- Married Call
- Married Put
- Short Collar
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An investor seeking to back-test any of the 23 strategies shown above can use PowerOptions back-testing tool to perform the task. So don’t delay, sign up for PowerOptions today and find out how your favorite option strategy would have performed over time, and maybe find out how to improve your favorite strategy, or even find an altogether different strategy which is better.
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