Backtesting options strategies from rules to contracts

Write the contract-selection rule

State whether the strategy selects contracts by fixed strike distance, moneyness, delta, days to expiration, liquidity, or another observable field. Define what happens when no contract qualifies and how an expiring or delisted contract is handled. Selecting today's liquid contracts in historical periods introduces information that was not available then.

Model every leg and lifecycle event

For a spread or multi-leg structure, use quotes from the same timestamp and state whether fills occur at bid, ask, midpoint, or another rule. Add commissions and contract fees per leg. Define early exits, rolls, expiration settlement, exercise, assignment, and buying-power treatment. The backtester must also prevent the strategy from spending the same capital twice across overlapping positions.

• Synchronize multi-leg quotes.
• Specify fill and fee rules per contract.
• Model rolls, expiration, exercise, and assignment.

Use an underlying signal as one layer, not the final result

Pine Script can test whether an underlying-price condition occurred before a later move. That can help validate the timing rule, but it does not reconstruct option premiums or Greeks. Export the signal dates into a contract-capable options engine when the claim concerns option strategy profit and loss.