SetFilter does not correctly choose the ATM strike price by Bradley Crossen

Bradley Crossen INVESTOR

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The SetFilter funciton does not correctly choose the ATM strike price, making it difficult to backtest. I have not been able to figure out exactly how it chooses its median value for the ATM strike price, but it seems pretty random. It can sometimes be off by 15 dollars or more. I have created a backtest that shows this issue. I have logged the underlying price and the chosen strike price when options are traded.

From the docs:

By default, the option universe is filtered down to contracts that expire within 35 days, one contract below and another above ATM, and exclude weeklys.

Also, how do you set the SetFilter function to include weeklys?

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Bradley Crossen

Accepted Answer

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Bradley Crossen

391 ,

I think I figured it out. The equity prices are dividend adjusted while the option algorithm is not.

Jared Broad

Correct! Option backtests must use raw data to handle the strike prices properly.

Cyrilius

39 ,

Are you sure you need that abs() call in sorting function?

Weeklys can be included as follows (I'm not sure if that's the correct way, but it works):

f = lambda x: x.IncludeWeeklys().Strikes(-1, +1).Expiration(timedelta(0), timedelta(15))

func = Func[OptionFilterUniverse, OptionFilterUniverse](f)

option.SetFilter(func)

Bradley Crossen INVESTOR

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