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Research Papers on Backtested Option Trading Strategies

Article Quant Q&A · Author: vonjd
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Summary

The document is a curated list of academic papers on historical option returns and strategies. It points readers to work on buy-write portfolios, option returns, volatility and skewness, dispersion trading, expiration effects, and whether options are mispriced. One cited study is presented as a basis for a hands-on replication using freely available volatility information and spreadsheet tools; a related post is said to include documented R code.

The material is a bibliography rather than a comparative review. It reports no common dataset, backtest design, performance figures, or conclusions across the listed studies, so readers must consult the original papers to assess methods and results. The list reflects the contributors’ selections and dates from the cited publications; it is not presented as exhaustive or as evidence that any strategy remains profitable after costs or under current market conditions.

Key ideas

  • The references cover buy-write strategies, option returns, volatility signals, dispersion trades, and expiration effects.
  • One cited paper is described as suitable for independent replication with accessible data and basic spreadsheet tools.
  • The document also points to a replication using R, but provides no performance results in the text itself.
  • The list is a starting bibliography, not a systematic comparison of study methods or findings.
  • Historical findings in the cited work do not establish present-day profitability or account uniformly for trading costs.

Tags

OptionsBacktestingVolatilityEquities
Full text
# Papers about backtesting option trading strategies


# Papers about backtesting option trading strategies












I am looking for all kinds of research concerning option trading strategies. With that I mean papers that publish results on different option trading strategies properly backtested with real-world data.

## Answer by vonjd (score 23, accepted)

https://quant.stackexchange.com/a/1433

I did some digging and found the following papers - most of them offering quite a distinct perspective compared to classical option pricing theory!

- Stock Options as Lotteries by Brian H. Boyer et al. (2011)

- The Efficiency of the Buy-Write Strategy: Evidence from Australia by Tafadzwa Mugwagwa et al. (2010)

The following is my favorite: You could do some backtests on your own with freely available data (using the VXO as volatility information) and with any spreadsheet - easy and elegant:

- How Students Can Backtest Madoff’s Claims by Michael J. Stutzer (2009)



- A Study of Optimal Stock & Options Strategies by Mihir Dash et al. (2008)

- Is There Money to Be Made Investing in Options? A Historical Perspective by James S. Doran et al. (2008)

EDIT: I will update this answer from time to time when new interesting papers arive:

- 15 Years of the Russell 2000 Buy-Write by N. Kapadia and E. Szado (2011)

EDIT 2: I just published a blog post where I replicate the abovementioned paper by Stutzer (2009):

- Backtesting Options Strategies with R

In the post, I provide the fully documented R code for your own experiments. For details please consult the post.

## Answer by Tal Fishman (score 11)

https://quant.stackexchange.com/a/1488

Since I, too, have been very interested in this question, I will share some of my findings in the dual hope of encouraging comments on the papers and eliciting more activity on this question.

- Ammann, Skovmand, and Verhofen (2008): Implied and Realized Volatility in the Cross-Section of Equity Options

- Ang, Bali, and Cakici (2010): The Joint Cross Section of Stocks and Options

- Bali and Murray (2011): Does Risk-Neutral Skewness Predict the Cross-Section of Equity Option Portfolio

- Cao and Han (2011): Cross-Section of Option Returns and Stock Volatility

- Constantinides, Jackwerth, and Savov (2011): The Puzzle of Index Option Returns

- Deng (2008): Volatility Dispersion Trading

- Driessen, Lin, and Hemert (2011): How the 52-Week High and Low Affect Option-Implied Volatilities and Stock Return Moments

- Jones and Shemesh (2010): The Weekend Effect in Equity Option Returns

## Answer by user697697 (score 9)

https://quant.stackexchange.com/a/1401

Option Traders Use (very) Sophisticated Heuristics, Never the Black–Scholes–Merton Formula

Stock Price Clustering on Option Expiration Dates

Option Returns and Volatility Mispricing

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.