Back Testing

One main characteristic of Exponential Moving Average (EMA) is that it weighs

current prices more heavily than past prices. Hence EMA gives a better and quicker
respond to the price fluctuations.

How is EMA calculated?

Current EMA = ((IV (current) - previous EMA)) * Multiplier) + previous EMA

For the multiplier, we are using 2/ (1+N), where N represent the number of day.
In our calculation, we will be using a 20 days period, assuming that each contract
is traded for roughly 20 days.

Calculate the Simple Moving Average

Simple Moving Average is simply calculated by taking the average of the first 20
days of data.

With the concept of Simple Moving Average and EMA, we can then proceed to
derive the values for change in the underlying (last) price of the commodity and
implied volatility.

The criteria for adopting Long Straddle:
1. Implied Volatility is less than the EMA of the Implied Volatility
2. Changes of price based on the previous day is less than the EMA of the
Changes of price based on the previous day
3. Strike at the money

All these criteria is to ensure that (why IV must be low? Low iv = low premium so
maximize profit)

and also change of price is large so that either the put or call option profit can be
maximized.

After which, we will use AND condition to check if both criteria 1 and 3 are meet.
Based on our strategy, if both criteria are met, we will buy the both call and put
option on the specified date.