I have backtested binary strangle on news and wrote a post on the forum (Binary strangle on news - backtest). Like I said, i don’t master the volatility parameter used for evaluate the option prices (in Black Sholes formula). That makes the strangle backtest not enough relevant. I only have general results like very strong news (NFP, interest rate,…) are more likely profitable, on the 2010-2017 backtested period. And also it seems that using TP for exit is a good thing.
I found at first that strangle was the most obvious strategy to play, and applied to big news, it should always win. But I realize, after reading apex videos and articles, that it is not the case, and may be the reverse could be more profitable.
So now I am interested in testing binary butterfly on news (same data, backtest engine, period), on two hours forex binary contracts EURUSD, GBPUSD, USDJPY,…) : I like to see both ITM options gain as time passes by, I find it very relaxing, compare to the stress of seing the strangle going to zero, slowly but surely, when the surprise is not there. Of course, I still need to evaluate the prices with Black Sholes formula, and the results will be general too.
To guide the BT, if you have some informations about the following points.
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about the volatility : when a news is coming, how the implied volatility reacts : is it growing long time before the news (hours), or only few minutes ? And when is it decreasing after the news (5mn, 10mn, hours …) ?
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in the news calendar (http://apexinvesting.net/news-trading/ ) each tradable news has some stats (in the pop up). Sometimes, it is advisable to enter the butterfly soon. Whereas, in the same page , it is written something different : “Ideally the butterfly is entered about 20 to 5 minutes before the news is released to take advantage of the increase in implied volatility to allow you to trade a wider range.” What is the best ?
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about the exit Is it a good practice to set a TP (for example exit both legs, if the strike bought is over 95) or is it better to go to expiration (in that case I skip the evaluation price problem). Is it a good idea to set a stop loss, (some posts/videos talk about that : “if the market touches one of the 2 strikes, exit both legs with small loss.”. Is it a good idea to set that kind of SL systematically ?
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if you prefer trade the news with spread, why is that ? May be it will encourage me to backtest on spreads
