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07-27-2015 05:13 PM

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

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07-27-2015 05:45 PM

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?

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07-27-2015 06:12 PM

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).

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07-27-2015 06:27 PM

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)

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07-27-2015 08:12 PM

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