Backtester Logic (Part 5)

Today I continue to dissect the conditional skeleton of the find_long branch shown near the bottom of Part 4.

L70 – L72 includes eight data type conversions. Early on, I was frustrated with unnecessary decimal output. To fix this, I tried converting applicable fields to data type ‘int'[eger] and some resulted in an error. Doing int(float()) was a successful workaround. I should revisit to see if the readability of output is improved enough to justify the added processing. For curiosity’s sake, I can add a timer to the program and check speed.

L70 filters options by DTE. I can make this more readable by creating two variables for lower and upper bounds followed by one if statement that calls for the variable to fall in between.

As mentioned above, I could add a timer to the program to see if this helps, but I don’t want to get bogged down with repetitive time measurements. If the backtester works, then I’m fine whether it takes 10 minutes 34 seconds or 12 minutes 28 seconds. Either way, I’ll be happy to get the results and spend the bulk of my efforts analyzing those.

Before the program calls for iterating through the data files, I have:

     > mte = int(input(‘Enter minimum (>= 2) months (1 mo = 30 days) to long option expiration: ‘))

Suppose I enter 2. At L70, the backtester will search for > 2 * 30 = 60 DTE. This is clear as the lower bound.

The upper bound is more complex because every quarter we get five weeks between consecutive expiration months rather than four. 92 DTE will meet the criteria and be correct only when 92 – 28 = 64 DTE does not follow in the current expiration. Data files are organized from highest to lowest DTE (see Part 1). With the goal to maximize efficiency by having the backtester going through the files once, I can’t have it iterating down and then having to go back up if what it finds below is not a match.

Thankfully, it doesn’t have to be that complicated.

The solution is to select and encode the first passing option but wait to leave the find_long branch until DTE changes. The program can then test whether the subsequent DTE also meets the criteria. If so, dump the values from the former and search for a new match. Otherwise, use the former. Switch to the find_short branch once this is all done.

If the first option meeting the criteria is less than 60 + 28 = 88 DTE, then no circumstance exists where the next DTE to appear will pass. In that case, no second check is even needed.

I will continue next time.