Saturday, February 20, 2010

Re: [TheOptionClub.com] Results of Test of Reverse IC Strategy

 

Ricky how much profit did you make in each of these positions. are you basing your return on the original amount or after you made the adjustment. when you made your condor put adjustments on all of these stocks why are the risk graphs below the zero line on all of the risk-free positions, it should be above zero. what happen to the goog trade since it was basically like all the other trades. all these positions lost on the call side and seem to be within the cone on the put side at expiration except goog why did you lose on goog. In theory since you collected more credit on all of these positions for the put condor, none of these positions should have lost to the downside that's why i'm baffle on these trades.  like i was saying can you show the (profit amount you made / to the risk amount) maybe things would be clearer. also do you have the exact breakevens on the original positions and after the adjustments. it seems to me you would have had a good profit if you just left the original trades on and taking profit when they went outside the breakevens, the odds of creating another condor on the call side where pretty slim,  you still  would had risk to the downside on the narrow put butterflys even though you would had reduce your risk. just my thoughts please explain your thinking process on creating such narrow flys.

--- On Fri, 2/19/10, Ricky Jimenez <rickyjim@bestweb.net> wrote:

From: Ricky Jimenez <rickyjim@bestweb.net>
Subject: [TheOptionClub.com] Results of Test of Reverse IC Strategy [5 Attachments]
To: "OptionClub" <OptionClub@yahoogroups.com>
Date: Friday, February 19, 2010, 11:51 PM

 
Right after January expiration, I started a paper test of the
following mechanical strategy:

Enter an approximately delta neutral pair of February debit spreads,
above and below the money for the following tickers, AAPL, GOOG, IBM,
IWM, RIMM. Choose the spreads so that, based on recent volatility for
each ticker, you can expect to reach the short strike for at least one
of the spreads. Whenever the market gets to the short strike of
either spread, sell the vertical spread, based on the short strike and
the next strike down, for enough credit to make a free fly on one
side. Do the same if the market reverses. Hold until expiration. I
used Options House software for the paper trading. Here are the
results based on today's closing prices.

AAPL - On 1-19, -220p+210p+220c- 230c @ 6.70.
On 1-22, +190p-200p @3.45.
Closing price on 2-19 was 201.67, giving a 75.8%
profit vs. 4.8% if original position was held to expiration (doing
nothing). Accompaning P/L chart is based on starting with 3 reverse
ICs. In the charts I tried to even out the amount of money invested
(= maximum risk) in each of the 5 positions.

GOOG - On 1-19, -570p+580p+600c- 610c @ 8.50.
On 1-22, 560p-570p @ 4.70.
Closing price on 2-19 was 540.76 giving a 44.6% loss
vs 100% loss for doing nothing. Chart based on starting with 2
reverse ICs.

IBM - On 1-19, -125p+130p+135c- 140c @ 2.69.
On 1-26, 120p-125p @ 1.41.
Closing price on 2-19 was 127.19, giving a 64.3% profit vs
4.3% profit for doing nothing. Chart based on starting with 7 reverse
ICs.

IWM - On 1-19, -63p+64p+65c- 66c @ .78.
On 1-22, 62p-63p @ .43.
Closing price on 2-19 was 63.06, giving a 75.6% profit vs
20.5% for doing nothing. Chart based on starting with 24 reverse ICs.

RIMM - On 1-19, -60p+65p+65c- 70c @ 3.45.
On 2-12, -70c+75c @ 1.81.
Closing price on 2-19 was 71.03 giving a 67.5% profit
vs 44.9% for doing nothing. Chart is based on starting with 6 reverse
ICs.

Average profit for the 5 positions was 47.7% vs 4.8% for the do
nothing after 1-19 methodology.

I hope that I have inspired somebody, who has a command of backtesting
software, to post results of a more extensive test. Also, it would be
nice if somebody checked my profit numbers. I have some comments to
make on what this test demonstrates, if anything, but would like to
refrain until others put their 2 cents in.

Ricky

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