Operations Research topics: SAS/OR,
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Optimizing the annualized return of a stock option strategy by find the best result of variable inputs

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New Contributor
Posts: 3

Optimizing the annualized return of a stock option strategy by find the best result of variable inputs

Hi All,

I'm working on a project of backtesting the strategy of Put Collar Spread (buying a put option at a lower delta (let's say -0.5 delta), selling a put option at a higher delta (-0.4) and selling a call to cover the cost of that put spread). The following is the variables setting in the code.

*********************  variables setting *************************;

%let ticker=SPY;

%let TTM_B=28;

%let TTM_E=35;

%let longtype=P; * trade on call or put spreads;

%let longdelta=-0.50; * choose what delta to buy;

%let shorttype=P; * trade on call or put spreads;

%let shortdelta=-0.40; * choose what delta to short;

%let hedgetype=C; * hedge based on call or put;

%let iv_limit=1;

%let target_ret=0.12; * annual;

%let RF=0.01; * the risk free rate;

%let months=60;

*****************************************************************

Is there anyone know how I can to find the optimized combination of longdelta (which is the put option I buy) and shortdelta (which is the put option I sell) to reach the best annualized return of this strategy?

Thank You,

Venus

SAS Employee
Posts: 448

Re: Optimizing the annualized return of a stock option strategy by find the best result of variable inputs

The first step is to express your desired objective function (annualized return) in terms of your decision variables longdelta and shortdelta.  Also, are there bounds on these variables?

New Contributor
Posts: 3

Re: Optimizing the annualized return of a stock option strategy by find the best result of variable inputs

I don't know how to express annualized return by using longdelta and shortdelta since when I change one delta, the entire selected data which will be assessed in the SAS will be changed.

The bound for delta would be (-1,0).

New Contributor
Posts: 3

Re: Optimizing the annualized return of a stock option strategy by find the best result of variable inputs

I don't know how to express annualized return by using longdelta and shortdelta because when I change delta, the entire data which will be processed will change as well. There is no clear direct relationship between delta and annualized return. Could you explain further how I can define the annualized return by using delta variables?

The bound for delta is (-1,0)

SAS Employee
Posts: 448

Re: Optimizing the annualized return of a stock option strategy by find the best result of variable inputs

Maybe it will help if you can post the code that computes the annualized return.

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