Backtesting Option Strategies
Hi option traders. I hope you are doing well today and that you find your portfolio growing. This article is part two of a series of six, and each article is accompanied by a video. I highly recommend you to watch all six videos if you’re interested in learning how to trade options as a business.
A very important step in learning to trade options is to spend a lot of time back testing your trades. There are just a few option software programs on the market at this time that can help you with this task, but learning to trade without costing you a dime is worth your time. I learned a lot by using Optionvue and/or Think or Swim to back test my option trades. These two software bundles have been very good, but now San Jose Options has just released a new type of back testing tool called the “Options Toolkit.” With this back tester you will save a lot of time in comparison to any other options testing software.
It use to take me one hour to back test a year of trading using a Butterfly trade with the Optionvue software. Then I used Think or Swim and it would be a little better, less time, but not as much information. Now, when I use the “Options Toolkit” I actually gather more organized data in about 2 seconds, this is to back test one year of Butterfly trades. It is so much better and faster. It’s truly a great tool to have at your fingertips.
Another step that each option trader must take before finding success is simply trading for many years. Experience is what we all call it. The reason that an option trader needs to trade for so long is because the stock market is constantly changing, and in order to see the many faces of the market, we need to trade for many years. There is no other way around it.
Paper trading is the perfect way to learn how to trade options. It is very easy to start. You can open up a free paper trading account with Think or Swim and/or almost any other options broker. You will need to practice and this gives you a good, safe way to do that. It may be difficult at first, but you need to paper trade for at least six months to a year; this is very important. Remember, it is very important to gain experience over time, seeing all sides of the market, and paper trading is one way to gain this experience without risking any money.
Lastly, I would like to say that it’s very important to keep about 25% of your capital in cash. This is because the best option strategies require adjustments, and to make these adjustments, you will need extra cash. It’s very dangerous to use up all of your spending money in your trading account. Every successful option trader leaves plenty of money in cash to make adjustments, to lock in profits and to be able to manage their portfolio as needed.
Learn more about the Options Trading Software. Stop by the San Jose Options Mentoring web site where you can find out all about Trading Options and what it can do for you.
Tags: invest, Investing, options software, stock market, trading options