1. Backtest Results
Ryan Simmen
March, 2017

2. Disclosure
Capital Discussions, LLC is NOT a Broker Dealer. Capital Discussions, LLC engages in trader education and training. Capital Discussions, LLC offers a number of products and services via the internet at capitaldiscussions.com. Capital Discussions, LLC offers web-based, interactive training courses on demand. Our partner, Highland Financial Group, is a Registered Investment Advisor. The webinars and seminars given by Capital Discussions, LLC are for educational purposes only. This information neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell securities. You shall be fully responsible for any investment decision you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs. Options involve risks and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, by calling OPTIONS, or at The information in this presentation is provided solely for general education and information purposes. No statement should be construed as a recommendation to buy or sell a security or to provide investment advice. You are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances. Such decisions should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance and liquidity needs. Supporting documentation for any claims, comparisons, statistics or other technical data in this presentation is available at Capital Discussions, LLC Past performance is not indicative of future results. Parameters relating to past performance of strategies discussed are not capable of being duplicated. In order to simplify the computations, slippage, commissions, fees, margin interest and taxes have not been included in the examples used in this presentation. These costs will impact the outcome of all stock and options transactions and must be considered prior to entering into any transactions. Multiple leg strategies involve multiple commission charges. Brokerage firms may require customers to post higher margins than the minimum margins specified on this web site. Investors should consult their tax advisor about any potential tax consequences. Simulated trading programs are designed with the benefit of hindsight. No representation is being made that any portfolio or trade will, or is likely to, achieve profits or losses similar to those shown. All investments and trades carry risks. For personal use only. All information on this web site is for your personal, non-commercial use only. Commercial use requires the written permission of Capital Discussions, LLC and may involve licensing fees.

3. Trading Career Trading is my hobby (not my career)
Fulltime software engineer
Trading options since March of 2016
Swing Trading since 2006
Day traded Futures (once upon a time)
Programmed several trading indicators
Back tested several trading strategies

6. Data Source IVolatility Import data into SQL Server
Programmed strategies using C#
Smoothed out prices using Black Sholes and Volatility Smile
Tested the years 2000 – 2015
This equates to 4,032 trading days
Tested over 100 different variations of the BWBs

7. Backtesting Algorithm
Enter only one trade at a time
Delta entry includes and
Days till expiration include 60, 45, 30, 15 DTE
If no strikes found then move up or down one delta
If still no strikes found then move out one DTE
Exit when loss exceeds 5% of max risk (reg-t margin)
Exit when the delta of the center strike has changed by either 20%, 30%, 40%, 50%, 60%, 70%, or 80%

8. Profit calculation Start with $100k Trade using the full account size
Add the profit or subtract the loss from the account with each trade
Enter the next trade using the full amount of new account size
Stop trading if there’s not enough money for a 1 lot
Book profits in the calendar year in which the trade was closed
Calculate annual statistics
Average entry DTE, exit DTE, and days in trade
Average profit on max risk
Max loss on a single trade
Max running drawdown across many trades
Total profit or loss for the year

9. Summarize Results Summarize statistics for all years combined
Average running drawdown
Average return
Annualized return
Track Large Losses (over 10%)
Track for 3 consecutive trading days
Note the subsequent market moves
Report the resulting position

10. What’s wrong with this approach?
It’s entirely path based!

11. How can we alleviate?
Do not carry profit or loss forward to the next trade
Make every trade the same size ($100k)
Place a new trade every single day
Unless we’ve already put on this exact trade in the past (hash)
Track each individually trade in isolation

12. Summarize Results Annual statistics Statistics for all years combined
Average entry DTE, exit DTE, and days in trade
Max loss on a single trade
Average return on margin
Statistics for all years combined
Profit factor
Percent winning trades
Inspired by Brian Johnson’s book
Option Income Strategy Trade Filters

13. What’s next? Create trade filters based upon market factors
Backtest other BWB strategies such as the Road Trip
Generate a real time T+0 payoff diagram to track live positions
Perform and in depth study of put skew

14. Questions