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August 10, 2009

Direction Neutral SP Strategy Analysis, 1H 2009
by Reggie Middleton

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 Direction Neutral Strategy - S&P 500 2009-08-06 05:37:27 1.38 Mb as well as the backtesting results spreadsheet - 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,
here are the position papers and backtesting results for all of 1H09 and the spring through summer market rally.
Option Strategy for the Rally of May-Aug 09 2009-08-10 03:26:14 574.26 Kb
S&P 500 Options Strategy Backtesting results_May-Aug 09 Addendum 2009-08-10 02:48:52 170.00 Kb
Option Strategy 1H09 2009-08-10 03:51:33 698.21 Kb
S&P 500 Options Strategy Backtesting Results 1H09 Addendum 2009-08-10 03:47:24 189.50 Kb

Comprehensive, market neutral option strategy analysis for CAT, JPM and LRN using actual market data will be released shortly, as will a forensic look at ACC's latest earnings report.

Reggie Middleton
Reggie Middleton, LLC
Perpetual Interests, LLCTM
http://boombustblog.com/

Who am I?

Well, I fancy myself the personification of the free thinking maverick, the ultimate non-conformist as it applies to investment and analysis. I am definitively outside the box - not your typical or stereotypical Wall Street investor. I work out of my home, not a Manhattan office. I build my own technology and perform my own research - in lieu of buying it or following the crowd. I create and follow my own macro strategies and am by definition, a contrarian to the nth degree.

Since I use my research as a tool for my own investing to actually put food on my table, I can stand behind it as doing what it is supposed too - educate, illustrate and elucidate. I do not sell advice, I am not a reporter hence do not sell stories, and I do not sell research. I am an entrepreneur who exists just outside of mainstream corporate America and Wall Street. This allows me freedom to do things that many can not. For instance, I pride myself on developing some of the highest quality research available, regardless of price. No conflicts of interest, no corporate politics, no special favors. Just the hard truth as I have found it - and believe me, my team and I do find it! I welcome any and all to peruse my blog, use my custom hacked collaborative social tools, read the articles, download the files, and make a critical comparison of the opinion referencing the situation at hand and the time stamp on the blog post to the reality both at the time of the post and the present. Hopefully, you will be as impressed with the Boom Bust as I am and our constituency.

I pay for significant information and data, and am well aware of the value of quality research. I find most currently available research lacking, in both quality and quantity. The reason why I had to create my own research staff was due to my dissatisfaction with what was currently available - to both individuals and institutions.

So here I am, creating my own research for my own investment activity. What really sets my actions apart is that I offer much of what I produce to the public without charge - free to distribute and redistribute, as long as it is left unaltered and full attribution is given to the author and owner. Why would I do such a thing when others easily charge 5 and 6 digits annually for what some may consider a lesser product? It is akin to open source analysis! My ideas and implementations are actually improved and fine tuned when bounced off of the collective intellect of the many, in lieu of that of the few - no matter how smart those few may believe themselves to be.

Very recently, I have started charging for the forensics portion of my work, which has freed up the resources to develop the site to deliver even more research for free, particularly on the global macro and opinion front. This move has allowed me to serve an more diverse constituency, which now includes the institutional consumer (ie., investment turned consumer banks, hedge funds, pensions, etc,) as well as the newbie individual investor who is just getting started - basically the two polar opposites of the investing spectrum. I am proud to announce major banks as paying clients, and brand new investors who take my book recommendations and opinions on true wealth and success to heart.

So, this is how I use my background and knowledge in new media, distributed computing, risk management, insurance, financial engineering, real estate, corporate valuation and financial analysis to pursue, analyze and capitalize on global macroeconomic opportunities. I have included a more in depth bio at the bottom of the page for those who really, really need to know more about me.

Visit his blog Boom Bust Blog.

Copyright © 2007-2009 Reggie Middleton

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