Does streak option buying strategy backtest results consider theta/time decay ? I dont want to take losses though my backtest results with high winning ratio.please confirm.
@Streak
Yes it depends on what date u choose the option to close after that they consider all greeks and give results , ya actually they consider everything or else its just a waste product to backtest rgt
1 Like
I wanted to know about intraday only.
i. Streak does not provide or sell any strategies. Streak allows users to backtest their own strategies.
ii. When you are talking about theta decay, you need to understand how an option instrument is priced, the most commonly used model is BSM. Some also prefer the 76 one. If you read and understand them, you would know that all the greeks are priced in. So if
A buys an option and
B writes the option and
C is another participant who is just monitoring the price on the screen, without taking any position…
all of them would see the same price at the same instant on-screen, the price of that option instrument will not be different for these three people because of their position. So the price of the option instrument already has theta priced in and the gradual decrease that you observe in options will affect all three,
A will loose
B will gain
C does not care
But the price will remain the same.
So, Streak performs backtest on historical data and the actual historical data has the theta decay priced in them already. So the triggers generated are on the price of the instrument and the price at any instance considers Theta, Gamma, Delta or Rho or any of 2nd or 3rd order derivatives, it does not matter because ultimately “bhav bhagwan che…” and its true for options as well.
If this was confusing, the short answer is Yes, the backtest results are correct because the result is not generated on simulated price but the actual historical price of that instrument.
Hope this gives you a better clarification.
1 Like