S&P futures are down 17 points as I type this. Here are more strategy analysis documents for subscribers. Wells Fargo and Sears have very expensive put options due to significant implied volatility, which make a pure market neutral strategy yield a prohibitively high breakeven point. We have calculated the optimal risk adjusted bear plays using spreads, and detailed them in the following documents. Keep in mind that once the matket does break, one is free to leg out of market neutral and spread positions to take full advantage. Since I don't offer trading advice here, I won't go into detail, but I welcome all discussion in which I will participate.
I consider the spread and neutral strategies' legs hedges.
Here are the results of the review of over 50 CAT optimized option strategies ranging from bearish to market neutral, using actual market data (not simply theoretical pricing) based upon upon our forensic research.
Below are extensive option strategy analysis for JP Morgan and Starwood Hotels, encompassing analysis and optimization of over 50 bearish and market neutral strategies. I have also included quarterly earnings results opinions and full forensics in the case of Starwood.
This is some rather valuable and heavy duty stuff. Feel free to discuss this openly in the private forums, and feel free to contact me if you have posted and would like me to join the discussion.
[Note: we have never performed a full forensic analysis of JPM, although there may be one coming]
The most recent quarterly earnigns highlight for ACC is now available to subscribers. ACC 2Q09 results review
Highlights from the opinion...
In 2Q09 ACC’s net income available to common shareholders’ declined to $(5.3) mn, or $(0.11) per share, for 2Q09 compared with $0.30 mn, or $0.01 per share, in 1Q09 primarily owing to decline in average occupancy to 90.7% in 2Q09 compared with 92.8% in 1Q09 and higher marketing expenses. Although in 2Q09 ACC’s total debt declined to $1,190 mn as of June 30, 2009 due to equity offering ($199 mn) the company still continues to face significant problems relating to financing of its debt maturities, particularly in light of its meager cash flows. The company’s average debt maturity as of 2Q09 was at 4.2 years while its Debt-FFO as of June 30, 2009 was at 20.5x.
I have received a few emails inquiring about the new strategy testing we have implemented and as a result I have decided to release the Q1 document to the public free of charge so everyone knows exactly what it entails. See pdf Direction Neutral Strategy - S&P 500 as well as the backtesting results spreadsheet - pdf Direction Neutral Strategy - S&P 500 Backtesting results addendum Q109 . Be aware that this is not for beginners and only encompasses Q1 2009 which had a decidedly bearish bias. I am now releasing the direction neutral strategy and back testing results for the entire first half of 2009 with a special addendum for the May to August bear market rally (or bull run, depending on which side of the fence you are standing).
The strategies implemented and tested above largely gain from volatility and since the S&P 500 on June 20, 2008 was almost at the levels as Jan 2, 2009, some of the strategies resulted in negative pay-offs at the expiry although they proved to be very profitable along periods throughout the life of the trade. This emphasizes the need for prudent stop placement and monitoring of the Greeks. I will be implementing a greek monitoring service as part of the professional subscription than is planned to illustrate the possibility of adverse and/or beneficial change in the greeks of the illustrated positions. Each strategy exhibited significant and substantial gains throughout the course of the first half of the year, but these gains (if not locked in) evaporated into losses by the end of the 6 month period. These gains would have been locked in (at some time, but not necessarily at maximum profit) with a prudent cash management system and greek monitoring which would have illustrated the source and extent of position profit deterioration.
As readers who were short during the bear rally would be happy to know, the market neutral strategy proved to be very profitable throughout the rally of the spring, turning in a significant return on investment. I would presume that this strategy, properly tweaked moving forward would position an investor to profit from both bullish and bearish moves for the fall.
For paying subscribers,
Note: The Goldman Sachs direction neutral strategy empirical analysist is now available to Pro subscribers. Click pdf Goldman Sachs Option Strategy Pro Analysis to access or proceed to the downloads section.
We have started with analyzing market neutral option strategies during the bull run of 2Q09. Also we have started with analyzing most optimal OTM Strangle strategies for the S&P and the companies we have covered over the last year. Below is a list of 12 companies for the purpose of analysis based on following criteria.
Criteria 1 :
a) More than 50% price change over the past one month / three month / six month and
b) More than 5% deviation from consensus mean
Criteria 2 :
b) More than 25% deviation from consensus mean
Based on the criterion above we have selected the list of 12 companies below. Before getting to the list, I want to make clear how absurd this rally has been. Notice the columns in the list and who has made the list... The worst performers with the worst prospects have been propelled the farthest, while the best performers with the brightest prospects have remained relatively static. I aim to mitigate the risk of prospecting for a correction with the direction neutral strategies described in my previous post.