Backtest a long-hold strategy with opposite levered ETFs
Author: gnibblet
Creation Date: 7/15/2014 9:59 AM
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gnibblet

#1
I would like to test whether buying a group of ETF pairs and writing calls against them is viable. I would need to test the over-all gain/loss in each pair and while WLP doesn't have options in it, if I could get it to report the percent price change from close-to-close on the third Friday of each even numbered month I could use my brain to figure the rest...

The idea here is to hedge say: SSO against SDS and write calls against them both. Theoretically, I should get a very small decline in capital value over a period of time (each ETF will rise/fall at about the same rate, minus an expense ratio). Then I write the options to cover the decline.

It would also need to rebalance the pairing every 10-20 percent to keep from getting way out of whack...

Any thoughts? Suggestions?

I'm pretty new to WLP, but I have some coding experience...just need to implement it in here...

Thanks for everything
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Eugene

#2
1 - ETF pairs

Here are some examples of pairs trading:

Pairs Trading
ActiveTrader 2010-10 | Market-neutral VIX-based pair strategy
S&C 2014-03 | Timing The Market With Pairs (Kaufman)
ActiveTrader 2011-05 | Inverse ETF switching system

To install the downloadable Strategies, follow "Instructions for Script Download" that you'll see on each of these pages.

2 - Options

I don't know if Fidelity started providing option data; previously they didn't. For backtestable option data, you might want to try our QuoteMedia provider. For symbol lookup and other option-related information, check out these online instructions. To get access to the extension(s), please create a support ticket.