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3 Comments

  1. Gustavo de Figueiredo
    July 26, 2022 @ 10:18 am

    Hey,
    I’m new here, so first of all, congrats on the website and all research done! I’m the CTO of a crypto prop trading desk so I can see the amount of hours you dedicated to this project.

    Now, a couple of questions:

    1. What do you mean by “Reg-T margin utilization”?
    2. When you say “Hindsight bias was used to maximize Reg-T margin utilization for each strategy. This allows a “best case” scenario for the option strategy to outperform the benchmark” do you mean you incurred in lookahead bias and maximized the size of you trade so that you always reached 100% of margin utilization? If that’s the case, do you have this same study opening a fixed sized position or using any other sizing strategy that doesn’t incur in lookahead bias?

    Bonus one: How close to an IV Rank is your “s1 signal”?

    Thanks and regards!

    Reply

    • spintwig.com
      July 26, 2022 @ 12:02 pm

      Welcome, and thanks for visiting!

      1) Reg-T margin utilization, as opposed to SPAN or portfolio margin. This includes using 20% of notional as the approximate margin requirement for each position.

      2) It’s the opposite – a single position / fixed position size of 1 was used and I “looked back” to identify the minimum amount of starting capital needed in order for the strategy to execute without exceeding 100% margin utilization at any point in time. Exceeding 100% would result in a margin call / needing to contribute additional funds / liquidation.

      In contrast, some clients have asked me to backtest various strategies with a predetermined / fixed amount of capital. They would ask: “would strategy ‘x’ have gotten margin called during event/year ‘y’ if we started with ‘z’ capital?”

      The resolution of my data is “daily”, so the margin calculations are performed at the close of each trading day (i.e. intraday price movements / margin requirements are not captured).

      Comprehensive methodology details, including additional info on these questions, is available at https://spintwig.com/methodology/ (see “calculating margin utilization” and “determining starting capital” sections)

      3) Not really sure how to answer. It depends how one defines “close.”

      Reply

  2. Gustavo de Figueiredo
    July 26, 2022 @ 12:44 pm

    Got it! Thanks for the quick answer!

    Reply

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