[TheOptionClub.com] Results of Test of Reverse IC Strategy [5 Attachments]

 

[Attachment(s) from Ricky Jimenez included below]

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

__._,_.___

Attachment(s) from Ricky Jimenez

5 of 5 Photo(s)

aapl_rev_ic.jpg

goog_rev_ic.jpg

ibm_rev_ic.jpg

iwm_rev_ic.jpg

rimm_rev_ic.jpg

Reply to sender | Reply to group

Messages in this topic (1)

Recent Activity:

• New Members 12
• New Files 1

Visit Your Group Start a New Topic

The goal of TheOptionClub is to provide a forum for members to work together for the purpose of furthering our individual understanding option trading.  All messages and postings, and any materials circulated are provided for discussion and educational purposes only.  No statement contained in any materials from TheOptionClub should be considered a recommendation to buy or sell a security or to provide investment, legal or tax advice.  All investors are encouraged to consult a qualified professional before trading in any security.  Stock and option trading involves risk and is not suitable for most people.  There is no guarantee that any information provided is accurate and, may in fact, be wrong.  It is understood that the participants in TheOptionClub have varying backgrounds and degrees of experience in option trading, and that regardless of experience each member is considered a student.  As such, any information distributed through TheOptionClub should be considered with a critical mind and not relied upon as an authoritative source.

To unsubscribe from TheOptionClub, send an email to:
OptionClub-unsubscribe@yahoogroups.com

Switch to: Text-Only, Daily Digest • Unsubscribe • Terms of Use

.

__,_._,___