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General instructions
Run the tester over the specified range of years. Available data
runs from 1986 through 2008 for most screens. You may start at any
month of the year, but other than January can only run through 2007/2008.
Stocks are picked from the screens every holding period (between
1 and 24 months) and held for that period.
Instead of selecting from the available screens, you may choose to
enter codes from any of the backtesters to create hybrid
tests. Simply copy the link listed at the top of a run & paste into the form.
Also see the backtester code guide.
If you want to simulate actual trading, you can enter more parameters in
the trading simulator.
You may give your backtest a name for convenience. If you use this
backtest code in other testers, its name will be shown instead of a full
description.
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Options Simulator instructions
Select the screen to choose the underlying stocks from, and the
ranks on that screen. Enter a volatility to use in the
Black-Scholes equation. Split the portfolio up into different options
strategies, specifying for each one the percentage to allocate, and the
option strategy to use (including stocks and cash). For option
strategies, also enter the percentage OTM to purchase the option at, and
the number of months out to purchase it. The Covered Call
strategy includes both the long stock and the short call.
Warning: Options are not to be taken lightly. Be
aware that this only simulates option returns, and returns can vary greatly,
even if the screens were guaranteed to act in the future as they have in the
past (which they're not). Options should never make up very much of your
portfolio (a good rule is 10%) and you need to have enough money to cover the
relatively high-price options contracts.
The chosen volatility makes a big difference in option returns and
should be chosen carefully, based on experience with the underlying screen.
The default 55% is (I believe) good for PEG stocks, but the number should be
raised, perhaps to 75% or so for RS stocks.
You should use the trading simulator for options, as their trading
costs are significantly greater than for stocks. In particular, a
spread of 5% is typical for options. The simulator's spread input is
for the entire position for the period, so in the typical "90% cash / 10%
call" setup, a 5% option spread would amount to a spread of .5% for the entire
position. Adjust up if a greater percentage is allocated to options, or if a
stock/option combination is used.
Recommended study for options: Options as a Strategic Investment by
Lawrence McMillan is an excellent reference for any option strategy (much more
than this simulator can do). For purchasing call options using the MI screens,
Sparfarkle's "6/3" strategy, read through the demos posted to the TMF MI
board (here's
the last post
with an index, but start at the beginning). Again: don't actually invest in
options until you're sure you know what you're doing.
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