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TRADING SYSTEM
OPTIONS STRATEGY
OPTIONS SYSTEM
LAB LAB
LAB
FIGURE 1 — PARABOLIC SAR CHART
The parabolic SAR works best during strong trending periods, which
Parabolic SAR developer Welles Wilder estimated occur roughly 30 percent of the time.
with credit
spreads
Market: Options on the S&P 500 index
(SPX).
Bearish signal
When price crosses below yester-
day’s parabolic SAR value, enter a
bear call credit spread as follows:
Execution: All entries occur at the close when price cross- STRATEGY SUMMARY
es yesterday’s parabolic SAR value. The system may hold
both bullish and bearish positions at the same time. Initial capital: $10,000
However, duplicate signals are ignored until a position clos- Net gain: $13,250
es. Percentage return: 133%
Option trades were executed at the average of the bid and Annualized return: 22.6%
ask prices at the daily close, if available; otherwise, theoret- No. of trades: 82
ical prices were used. The standard deviation was calculat- Winning/losing trades: 70/12
ed with a probability calculator using the implied volatility Win/loss: 85%
(IV) of the at-the-money call in the relevant month. Each Avg. trade: $161.59
spread held five contracts per “leg.” Commissions were $5 Largest winning trade: $1,580.00
per trade plus $1 per option ($20 per spread). No commis- Largest losing trade: -$2,340.00
sions were included when a spread expired worthless. Avg. profit (winners): 447.93
Avg. loss (losers): -1,508.75
Test data: The system was tested using options on the Avg. hold time (winners): 36
S&P 500 index (SPX). Avg. hold time (losers): 19
Max consec. win/loss: 29/2
Test period: Jan. 12, 2004 to Nov. 20,
2009.
LEGEND:
Net gain — Gain at end of test period.
Test results: Figure 3 shows the per-
Percentage return — Gain or loss on a percentage basis.
formance of the system, which gained
Annualized return — Gain or loss on a annualized percentage basis.
$13,250 (133 percent) in six years, a 22.6-
No. of trades — Number of trades generated by the system.
percent annual return. In the test’s first four
Winning/losing trades — Number of winners and losers generated by the system.
years, the strategy had a winning percent-
Win/loss — The percentage of trades that were profitable.
age of 93 percent. But in the final 18
Avg. trade — The average profit for all trades.
Largest winning trade — Biggest individual profit generated by the system.
Option System Analysis strategies are tested Largest losing trade — Biggest individual loss generated by the system.
using OptionVue’s BackTrader module (unless
Avg. profit (winners) — The average profit for winning trades.
otherwise noted).
Avg. loss (losers) — The average loss for losing trades.
If you have a trading idea or strategy that Avg. hold time (winners) — The average holding period for winning trades (in days).
you’d like to see tested, please send the trad- Avg. hold time (losers) — The average holding period for losing trades (in days).
ing and money-management rules to
Max consec. win/loss — The maximum number of consecutive winning and losing trades.
Advisor@OptionVue.com.