Displaying items by tag: bull market

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 2009-08-06 05:37:27 1.38 Mb as well as the backtesting results spreadsheet - pdf  Direction Neutral Strategy - S&P 500 Backtesting results addendum Q109 2009-08-06 05:36:31 184.00 Kb . 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,

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 2009-08-06 05:37:27 1.38 Mb as well as the backtesting results spreadsheet - pdf  Direction Neutral Strategy - S&P 500 Backtesting results addendum Q109 2009-08-06 05:36:31 184.00 Kb . 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,

The second quarter + has been a hard time for fundamental investors. The market has literally disengaged itself from all fundamentals (and apparently even technicals). Although I clearly anticipated a strong bear market rally in March, the last 4 months or so have been ridiculous, bringing to mind all sorts of market manipulation theories (and some not so theoretical explanations).

I have decided to supplement both my proprietary trading regimen and consequently the research and opinion offered via subscription, since this site is basically a digital diary of my investment opinion and actions. Please keep in mind that this site's contents and offerings are NOT investment advice and should not be considered as such. With that in mind, I am going to post some empirically derived, direction neutral strategies that I either have used or plan on using, wrapped around the forensic and fundamental research. This is a lot of work, and goes considerably beyond the scope that I planned to offer via subscription, but these are very difficult times from an investment perspective and since I am putting the resources in to generate the material, I am (for the time being) going to share it with professional subscribers. I will post the initial introductions to all subscribers, though.  

To determine the best market neutral option strategy during periods of increased volatility (and by volaitility, I mean significant price movement in either direction) for the time being we have considered 3 option strategies – straddle, strangle and put ratio back spread with different strike prices. We have empirically back tested these strategies for the period January 2009 – March 2009 assuming an investor enters an option strategy on January 2, 2009 based on 3 month expiration schedule and closes out his position at the end of the trading day on expiry (in reality, this may not be the optimal method but it was simplified for backtesting purposes).  Currently, we have analyzed these strategies for the period January-March 2009 as historical volatility of S&P 500 index in 1Q09 was nearly 40% compared with long term historical volatility of approximately 20%.

The table below shows option trades for each of the three strategies at various strike prices, the initial investment, theoretical maximum gain and loss for each of the strategy, maximum and minimum payoff at any point during the three month frame under analysis (Jan-March 2009) and payoff at expiry.

 

The second quarter + has been a hard time for fundamental investors. The market has literally disengaged itself from all fundamentals (and apparently even technicals). Although I clearly anticipated a strong bear market rally in March, the last 4 months or so have been ridiculous, bringing to mind all sorts of market manipulation theories (and some not so theoretical explanations).

I have decided to supplement both my proprietary trading regimen and consequently the research and opinion offered via subscription, since this site is basically a digital diary of my investment opinion and actions. Please keep in mind that this site's contents and offerings are NOT investment advice and should not be considered as such. With that in mind, I am going to post some empirically derived, direction neutral strategies that I either have used or plan on using, wrapped around the forensic and fundamental research. This is a lot of work, and goes considerably beyond the scope that I planned to offer via subscription, but these are very difficult times from an investment perspective and since I am putting the resources in to generate the material, I am (for the time being) going to share it with professional subscribers. I will post the initial introductions to all subscribers, though.  

To determine the best market neutral option strategy during periods of increased volatility (and by volaitility, I mean significant price movement in either direction) for the time being we have considered 3 option strategies – straddle, strangle and put ratio back spread with different strike prices. We have empirically back tested these strategies for the period January 2009 – March 2009 assuming an investor enters an option strategy on January 2, 2009 based on 3 month expiration schedule and closes out his position at the end of the trading day on expiry (in reality, this may not be the optimal method but it was simplified for backtesting purposes).  Currently, we have analyzed these strategies for the period January-March 2009 as historical volatility of S&P 500 index in 1Q09 was nearly 40% compared with long term historical volatility of approximately 20%.

The table below shows option trades for each of the three strategies at various strike prices, the initial investment, theoretical maximum gain and loss for each of the strategy, maximum and minimum payoff at any point during the three month frame under analysis (Jan-March 2009) and payoff at expiry.

 

As a Memorial Day gift to paying subscribers, I am offering a 22 page recession comparative analysis that shows specifically which indicators led the S&P 500 into an out of the last three recessions (of course, we are out of the last one yet, so the exit is incomplete). I noticed many people simply regurgitate what they hear in the media or from XYZ renowned pundit, in lieu of looking the data up for themselves. Many may be shocked to find out exactly what is a leading vs. a lagging indicator, and which indicators actually indicate nothing at all. This work should also go a long way in helping many discern whether we are in a bear market rally or the beginning of a new bull market, which is the reason why I commissioned it in the first place. I've always have to stress test my thesis!

Subscribers should feel free to discuss this (and only this) macro analysis openly in the public comments section, if they so desire. It can be downloaded here: An unbiased, independent retrospective comparative review - April 2009 An unbiased, independent retrospective comparative review - April 2009 2009-05-22 11:26:07 781.96 Kb. Professional/institutional subscribers also have access to the data-heavy 7.5 megabyte spreadsheet that was used to power the the analysis. Yes, I am feeling particularly generous today: Business Cycle Comparison Business Cycle Comparison 2009-05-22 11:17:12 7.44 Mb.