14d • General discussion
Your options backtest is lying to you
I'm honestly shocked by how easily traders get seduced by backtests.
Tools like OptionsOmega, OptionStack, eDeltaPro are curve-fitting machines. Tweak delta, move DTE, change width, entries, exits and filters until the curve finally behaves.
There is no mathematical reason a cherry-picked in-sample curve should predict future returns.
Test 45 independent variations of a strategy with zero real edge and the expected best Sharpe already lands near 1.0. Test 1,000 and it rises to 1.46. Bailey, Borwein, Lopez de Prado and Zhu showed mathematically how selection alone manufactures "alpha." I ran the formula myself. Zero edge.
Options are even dirtier. Duarte, Jones and Wang found microstructure biases exceeding 50 basis points per day in some option-return estimates. Yet the backtest assumes you traded at the midpoint.
That is why NOBODY from the OptionsOmega crowd has EVER replicated those backtests with transparent live results. Think about it. Post the live account next to the backtest. I'll go first.
P.S. Here's a second problem I skipped above. A paper accepted at The Review of Financial Studies found that many options backtests quietly throw out price quotes that look wrong, using information nobody had at the time of the trade. The tool curve-fits your entries. It also cheats on your fills.
P.P.S. This is why, in our hedge fund, we don't use retail tools like these in the way they're advertised. There's a much smarter process for researching these strategies, closer to how it gets done at the institutional level. Happy to get into that in the comments if people want it.
Has anyone here found a vendor, in this space or elsewhere, that puts live results next to the backtest instead of just the curve?
1
0 comments
Your options backtest is lying to you
powered by
skool.com/optionmasters-7409
Options can be scary, not anymore. We will go over the different options, from safest to riskiest, to find the best strategies to grow your portfolio.
Suggested communities
Powered by