Backtester Logic (Part 6)

Today I want to finish ironing out the logic from L70 shown here then continue to analyze that conditional skeleton.

As an example of my proposed solution at the end of Part 5, in 2015 (date 16448) we have options with 94 DTE followed by options with 66 DTE. Both pass L70, which means the latter is what I want. I can add a Boolean flag check_second that starts out as False. Once int(float(stats[2])) no longer equals L_dte_orig (see key), the flag gets changed to True. If this passes L70 then find_long continues in this DTE. If it fails L70, then change control_flag to find_short and continue (to the next iteration) without setting wait_until_next_day to True.

In addition to the 60 – 95 DTE range, I am also interested in studying longer-dated time spreads despite potential issues with slippage. Examples include 90 – 125, 120 – 155, and 150 – 185 DTE. Live trading is the best way to understand slippage. Unfortunately, I can’t go back and live trade in previous years. Common wisdom suggests slippage will be lower with higher volume and open interest, but the data files don’t allow me to test this. I could plot volume and open interest over time, but this may be a waste of time since I have no way to know how that might translate to slippage.

Another thing that may limit my ability to backtest longer-dated options is historical availability. Over the years, more expirations and more strike prices have come available coincident [I suspect] with higher-volume option trading. In 2015, 168 DTE is available followed by 105 DTE, which means I can’t do a time spread one month wide. Things change in 2020. In early Jan 2015, monthly expirations appear for the first four months. In early Jan 2020, monthly expirations appear for the first six months. This expresses my concern despite being anecdotal observation.

One thing I don’t see in the conditional skeleton is a continue statement at the bottom. Whether or not the backtester identifies the current row as the long option, it can then advance to the next iteration (row). Without a continue statement, the program will go on to unnecessarily evaluate control_flag three more times before advancing. “Continue” should conclude the first three branches. Completing the block, the last branch doesn’t need a continue statement as advancing to the next iteration will automatically take place.*

I will press forward next time.

*—Actually, I did remember this. The Atom text editor features folding to hide blocks of code as described
     here. With “continue” being the last line of the previously indented blocks, they were hidden.