Backtester Development (Part 7)

Today I will finish discussing the ‘find_spread’ control branch before moving on to ‘update_long.’

A few final steps are taken after the spread is identified:

• All variables are assigned from lists.
• First row of btstats (intratrade_results) is added.
• trade_status is changed to IN_TRADE.
• Control flag gets assigned ‘update_long.’
• Several variables and lists are reset. This includes converted_date.
• Break out of the for loop.

The last step is critical. I initially included a continue statement, which repeats the loop and selects the longest-dated option under 200 DTE every time: definitely not what I want.

I’m somewhat confused in determining where the program goes next, but I think it must be back to the top of the data file iteration loop. The for loop, of which this is a part, concludes the ELSE of the ‘find_spread’ control branch. Unlike the previous version, at this point the program is already looking at the next date so nothing needs to be done with wait_until_next_day.

The ‘update_long’ branch is brief. If strike price and long expiration date match, then variables for the long option are updated along with underlying price. If strike price and expiration date do not match, then continue to the next line of the data file.

I am sloppy with what variables to reset at the end of ‘find_spread.’ Some variables not reset are used in ‘update_long.’ What matters most is that every variable to be subsequently passed to btstats gets assigned a new value as part of the update branches. I’ve discussed possibly using functions to initialize and reset variables. Much of the resetting (and initializing) is unnecessary as long as I assign everything at the proper points. I try and reset where I can since I don’t trust myself with this, but I could shorten the program simply by being more careful.

The ELSE, which executes when control_flag is ‘update_short,’ begins with a check to make sure current_date still matches historical date. False would indicate the spread failed to be updated: a fatal flaw.

Next and similar to above, if strike price and short expiration date match, then variables for the short option and the spread are updated. No need to change underlying price as date has not changed.

I then include logic for max adverse/favorable excursion. I need variables for MFE, MAE, MFE_dte, and MAE_dte. I also need to store the previous values because I never want the max excursion to be equal to closing PnL.* If ROI_current < MAE (or > MFE), then the MAE (MFE) values get assigned to a _prev variable set and ROI_current gets assigned to MAE (MFE).

I will continue next time.

*—Alternatively, I could have used and maintained lists with two elements
     each rather than duplicating the variable set with a _prev suffix.