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ty


Total Posts: 13
Joined: Aug 2015
 
Posted: 2015-11-25 05:20
Hi guys,

This is my first time trying to do backtest with listed index options.

I am trying to understand how the so called "daily rolled of weekly SPX option" is back-tested.

Intuitively, I think the authors means selling an option every day with 1 week expiration. This essentially results in 5 portfolios (1 for each trade day of the week).

However, in reality, say, we are at Monday, then the available weekly SPX options
are those targeting each of the next 4 Fridays.

On Monday, one can sell the options expires at the first Friday.

On Tuesday, not sure how to sell a one week forward option provided that the actual expiration day is not existed.

Thanks,
TY




RFMontraz
NP Italian Stallion

Total Posts: 2019
Joined: Mar 2004
 
Posted: 2015-12-04 15:05
Not sure what authors/paper you are referring to, options are not listed so you can back test it with theoretical values but in real life you will only be able to trade them OTC.

Alternatively they might have meant weekly roll of weekly options, which would be more practical (even though liquidity is limited, a thing to consider in your back test).

As a general note, backtesting options is very tricky, historical implied volatility are not always reliable, bid ask spreads can be big, etc..

ronin


Total Posts: 314
Joined: May 2006
 
Posted: 2015-12-07 15:43
@ty, depends on the context.

If you roll them daily, it means every day you sell the one you had since yesterday, then buy a new one. So every day you just hold one, but you have rolled 5 by the end of the week.

The roll might be related to a new strike, if you are rolling 1st to expire ATM option. Or it may really mean strict 1w expiry, so say on Monday you would buy an option expiring on following Monday, which you would hedge with the two surrounding Fridays.

"There is a SIX am?" -- Arthur

Jurassic


Total Posts: 96
Joined: Mar 2018
 
Posted: 2018-04-30 22:28
@RFMontraz Do you backtest options with historical IV by delta or by strike or by some other method?
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