Backtesting this risk-free options strategy - Short Box!
Updated: May 30, 2020
We applied this arbitrage strategy to Bank Nifty weekly options to see the results.
This popular, risk-free strategy is ideal when option prices are overvalued as compared to the underlying stock.
Strategy set up:
Buy Call B
Sell Call A
Sell Put B
Buy Put A
Backtested results are given below.
Profit & loss:
To further optimize, we added a profit target of 100 points.
As a further step, we added stop loss:
With backtesting, we understand that the original strategy, without target profit & stop loss, offers maximum returns with minimal drawdown.
Avoid losing capital while testing. Validate your strategy by backtesting & optimizing it.
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