226: Does Adding a "Trend Filter" Improve Directional Option Selling Strategies?

"The trend is your friend." It’s a popular saying amongst traders, and we hear it all the time. But is there validity in the statement?

We backtested directional option selling strategies with a long-term trend filter to see if there is a significant impact on performance.

We used Option Alpha's backtester to review the data for  SPY, GLD, and TLT short put spreads and short call spreads. Short put spread tests included a filter to only enter trades above the 200-day moving average. Short call spread variants included a filter to only enter trades below the 200-day moving average.

Click here to see the full backtest results.

Important Note: This podcast is for educational purposes only. Past performance does not guarantee future results. This data is presented objectively and is not financial advice or a suggestion to use these strategies. We encourage you to always do your due diligence and test your strategies.

Let's take a closer look at the performance of these strategies using different trend filters. This is a great baseline when considering how to set up your trades, and we hope this inspires you to backtest your ideas for strategy optimization.