Manual vs automatic options backtesting

There are two ways to test an options idea on the past. You can step through history yourself, one trading day at a time, deciding as you go. Or you can write the rules down and let software run them over years of data. They answer different questions.

Automatic backtesting: fixed rules over many years

An automatic backtester takes rules — "sell a 20-delta put spread 45 days out, close at half the credit or at 21 days" — and applies them to every entry date in its data. You get totals over hundreds of trades quickly.

• Good for: comparing rule variations, and seeing how often a rule meets a bad stretch.
• Easy to miss: the totals hide what each trade felt like while it was open. A rule that "recovers" in the summary may have spent weeks near its maximum loss — the days on which a real person changes their mind.
• Watch for: rules tuned until the past looks good. More variations tried means more chance the winner just fits that past.

Manual backtesting: one day at a time

In a manual backtest you open a position on a past date and press Next day, seeing each day's real prices without knowing what comes next. Every roll, close or hold is your decision with only what that day showed.

• Good for: practising the decisions themselves: when to take a profit, when to roll, how a loss feels while it grows.
• Easy to miss: one run is one date. A single good outcome says little about the next one, so test several, including bad stretches.
• Watch for: hindsight. If you already know a date's story, you will trade it better than you would have.

The worked examples in these guides are manual backtests: an SPX iron condor in June 2024, a put credit spread on the same dates, a TQQQ spread in May 2022 and an iron condor through the 2008 crash.

Which to use

Use both, in that order of curiosity: step through a few dates by hand until you know what your trade does on a good day and a bad one, then test the rule you settled on across many dates. Then go back and step through the worst stretch the totals show — by hand.

In Test My Legs

Test My Legs is built for the manual kind: real recorded option prices (SPX and XSP from 2007, TQQQ and SOXL from 2010), one trading day at a time, with a preview before every fill and the option to go back to any day you have played and try another choice. It is free to start.

Coming soon: Test with AI — describe a strategy in plain words and let the app play it out over the days you choose. It is not available yet.

Backtests describe the past under simplified assumptions. They do not predict future results, and nothing here is investment advice.