Here at tastytrade, our goal is to produce high-quality news and analysis that gives traders a leg-up when trading global financial markets.
Typically, our programming is accompanied by internal research, which can help provide further perspective on various strategies, position structures, and trading concepts.
In many cases, to help illustrate the past success of an approach, or to compare the performance of several approaches, we design and conduct studies that include backtests. In the financial universe, backtesting is commonly conducted to leverage historical market data to understand how a strategy has performed over time.
To provide the most complete picture possible, we often perform second-level analysis in our studies. In this regard, we analyze data across all trading environments. Then, we take a deeper look at the data to examine specific conditions.
For example, a backtest looking at the historical success of short strangles in SPY might look at every instance in the past ten years. Then, the data is further parsed to isolate occurrences only when VIX was above 15.
This approach allows us to present a study with wider breadth, which we hope is more useful to viewers.
A recent episode Options Jive provides further insight into the methodology tastytrade employs when conducting studies and backtests. Specifically, the Options Jive team focuses on two metrics that tastytrade often uses when presenting the results from a backtest - success rate and average p/l.
These two terms are defined as follows:
Success Rate: The % of total trades that were profitable
Average P/L: The average profit (or loss) of all trades in the study
On the show, the hosts walk through a study from a previous episode of Market Measures in order to illustrate how they interpret the results - particularly relating to success rate and average p/l.
Traders seeking more information on how tastytrade produces and interprets this type of data will find this episode particularly enlightening.
If you have any questions about this material, or have any suggestions for future studies, we hope you'll leave a message in the space below, or contact us directly at firstname.lastname@example.org.
We look forward to hearing from you!
Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.