one week live trading = reality check #
algo’s been running 7 days. march 15-17. opened 3 positions total
backtest said i’d make $255 in first week (3 trades, 2 wins, 1 loss)
actual result: +$140
that’s 45% less than backtest. wtf
the slippage problem #
every single fill was worse than backtest assumption. been reading r/options discussions about slippage and everyone says same thing - live fills always worse than theory.
trade 1 (march 15):
- backtest fill: $0.90 credit
- actual fill: $0.85 credit
- slippage: $5 per spread ($50 on 10 contracts)
trade 2 (march 16):
- backtest fill: $1.10 credit
- actual fill: $1.02 credit
- slippage: $8 per spread ($80 on 10 contracts)
trade 3 (march 17):
- backtest fill: $0.95 credit
- actual fill: $0.91 credit
- slippage: $4 per spread ($40 on 10 contracts)
total slippage in one week: $170
that’s more than my entire profit ($140)
why this matters #
if slippage averages $6 per spread and i’m trading 60 spreads per month, that’s $360/month i didn’t account for
at $400k account that’s 0.09% monthly drag
doesn’t sound like much until you realize that’s 1.08% annually just from slippage
my backtest sharpe was 1.9. subtract 1% annual drag and sharpe drops to maybe 1.6
still profitable but way less margin for error
what i’m doing about it #
adjusted my backtest model to assume $7 slippage per trade (conservative)
re-ran 2021-2022 data:
- old backtest: 18.2% annual return
- new backtest with slippage: 14.7% annual return
- sharpe ratio: 1.9 → 1.65
that’s more realistic
also looking at limit orders instead of market orders on the short leg. might save $2-3 per fill but adds execution risk if i don’t get filled
current positions #
have 2 open positions right now:
- SPX 4300/4310 call spread (march 22 expiration) - up $40
- SPX 4280/4290 put spread (march 24 expiration) - up $25
both at ~50% profit target. will close monday if profit holds
first week stats #
- trades: 3
- wins: 2
- losses: 1 (stopped out for -$85)
- gross profit: $310
- slippage cost: $170
- net profit: $140
- win rate: 66% (backtest predicted 72%)
not terrible for week 1. but slippage is real and i need to account for it
-AK