226: Does Adding a "Trend Filter" Improve Directional Option Selling Strategies?

The Option Alpha Podcast

Kirk Du Plessis

Investing, Trading, Stock Market, Business, Options Trading, Education, Finance

4.8 • 1.2K Ratings

🗓️ 12 April 2023

⏱️ 51 minutes

🔗️ Recording | iTunes | RSS

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Summary

"The trend is your friend." It’s a popular saying amongst traders, and we hear it all the time. But is there validity in the statement?

We backtested directional option selling strategies with a long-term trend filter to see if there is a significant impact on performance.

We used Option Alpha's backtester to review the data for SPY, GLD, and TLT short put spreads and short call spreads. Short put spread tests included a filter to only enter trades above the 200-day moving average. Short call spread variants included a filter to only enter trades below the 200-day moving average.

Click here to see the full backtest results.

Important Note: This podcast is for educational purposes only. Past performance does not guarantee future results. This data is presented objectively and is not financial advice or a suggestion to use these strategies. We encourage you to always do your due diligence and test your strategies.

Let's take a closer look at the performance of these strategies using different trend filters. This is a great baseline when considering how to set up your trades, and we hope this inspires you to backtest your ideas for strategy optimization.

Transcript

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0:00.0	You hear all the time, the trend is your friend.
0:03.0	While there's no doubt that trend trading strategies and filtering can help improve overall performance,
0:08.0	we also wanted to challenge the conventional wisdom when it comes to directional option selling strategies.
0:14.0	So we did some back testing and took some basic option selling strategies
0:18.0	and applied a simple long-term trend filter to see if it helped or hurt the performance of the strategy.
0:25.0	And for good measure, we spread the testing across three major asset classes,
0:29.0	testing SPY, TLT, and GLT.
0:33.0	You're listening to the Option Alpha Podcast from Option Alpha dot com,
0:37.0	where we show you how to make smarter trades.
0:39.0	Learn how the stock market really works and generate consistent monthly income.
0:44.0	Now, your host and head trader at Option Alpha dot com, Kirk 2 Pluses.
0:51.0	Everyone, this Kirk here again from Option Alpha,
0:53.0	working every single week to make this the most popular investing podcast offered online
0:57.0	because it's based on one thing and one thing only.
1:00.0	And that's helping you consistently place smarter trades.
1:03.0	So thank you so much again for tuning in today and welcome back.
1:06.0	We've got a really cool episode here where we're talking about trend trading filters.
1:11.0	And if applying a very simple trend filter can improve directional option selling strategies.
1:18.0	So what do we mean by this with directional option selling strategies?
1:21.0	We're talking about selling put spreads and selling call spreads.
1:25.0	Those are directional selling strategies.
1:27.0	You could say they're kind of semi non directional.
	...

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