Safehaven | Direction Neutral SP Strategy Analysis, 1H 2009

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/

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