# Proper Definition of Backtesting Parameter

Currently I'm trying to test the efficacy of a tail-hedging strategy in which an investor goes long in an index and correspondingly buys 1-month OTM put options. For practical reasons, the options with the particular strike price that we buy each month must be liquid. My dilemma is in how exactly do I define the filters used to select the strike price.

Currently, there are 2 filters - open interest and the strike price itself:

1) Strike price - Suppose $K$ is 5% of the underlying price rounded to the nearest 100. Then the strike price is $K$ if the corresponding options are liquid, $K-100$ if $K$ isn't liquid, and $K+100$ if neither $K$ nor $K-100$ are liquid. No option purchased if none of them is liquid.

2) Open interest - A strike price with an open interest of at least 1000000 contracts is considered liquid.

Now the main problem is that the above definition of a liquid option is really vague. I read that it's a huge mistake to randomly vary or not properly define the parameters, and then to rely on the results of such a backtest. I'm testing this strategy for the Indian market, wherein option trading picked up from 2009 onwards (i.e., more liquid options were available) according to my project guide. This introduces another problem - I don't have enough data points to perform both backtesting and forward-testing.

So with all of the above background info in mind, how do I come up with a concrete definition of what a "liquid" strike price should be? Sure I can relax the definition and that way I'll have even more data points available from 2006 onward, but wouldn't that just be reckless overfitting?