Options Backtester

Simple backtester to evaluate and analyse options strategies over historical price data.

• Requirements
• Setup
• Usage
• Recommended Reading
• Data Sources

Requirements

• Python >= 3.5
• pipenv

Setup

For backtesting, set $OPTIONS_DATA_PATH to the appropriate directory where the data is located. All file paths parsed by the backtester will be relative to this directory.

To use the data scraper the following environment variables need to be set:

• $SAVE_DATA_PATH: where the data will be saved to (default is ./data/scraped)
• $TIINGO_API_KEY: used to fetch data from Tiingo
• $S3_BUCKET: name of the S3 bucket to backup data
• $AWS_ACCESS_KEY_ID: AWS acces key id
• $AWS_SECRET_ACCESS_KEY: AWS secret key
• $SLACK_WEBHOOK: used to send Slack notifications

You can configure the data scraper by editing the configuration file data_scraper.conf (json-formated).

Sample file:

{
  "cboe": {
    "mute_notifications": ["BFB", "CBSA"]
  }
}

HINT: store environment variables in an .env file and pipenv will load them automatically when using make env.

Usage

Create environment and download dependencies

$> make init

Activate environment

$> make env

Run tests

$> make test

Scrape data (supported scrapers: CBOE, Tiingo)

$> make scrape scraper=cboe

$> make scrape scraper=tiingo

Run backtester with benchmark strategy

$> make bench

Recommended reading

For complete novices in finance and economics, this post gives a comprehensive introduction.

Books

Introductory

• Option Volatility and Pricing 2nd Ed. - Natemberg, 2014
• Options, Futures, and Other Derivatives 10th Ed. - Hull 2017
• Trading Options Greeks: How Time, Volatility, and Other Pricing Factors Drive Profits 2nd Ed. - Passarelli 2012

Intermediate

• Trading Volatility - Bennet 2014
• Volatility Trading 2nd Ed. - Sinclair 2013

Advanced

• Dynamic Hedging - Taleb 1997
• The Volatility Surface: A Practitioner's Guide - Gatheral 2006
• The Volatility Smile - Derman & Miller 2016

Papers

• Volatility: A New Return Driver?
• Easy Volatility Investing
• Everybody’s Doing It: Short Volatility Strategies and Shadow Financial Insurers
• Volatility-of-Volatility Risk
• The Distribution of Returns
• Safe Haven Investing Part I - Not all risk mitigation is created equal
• Safe Haven Investing Part II - Not all risk is created equal
• Safe Haven Investing Part III - Those wonderful tenbaggers
• Insurance makes wealth grow faster
• Ergodicity economics
• The Rate of Return on Everything, 1870–2015
• Volatility and the Alchemy of Risk

Data sources

Options trading strategies backtests

• DTR Trading

Exchanges

• IEX
• Tiingo
• CBOE Options Data

Historical Data

• Shiller's US Stocks, Dividends, Earnings, Inflation (CPI), and long term interest rates
• Fama/French US Stock Index Data
• FRED CPI, Interest Rates, Trade Data
• REIT Data