Friday, August 10, 2012

DN Options- Part 2 8.10.12

In part 2 we see what happens when we engineer the delta neutral profile to delta positive.  We still employ the at the money (ATM) call strategy but we re-establish our positions if they are called away (exercised).  In a later iteration next week we see what happens when we sell calls 1 or 2 strikes out of the money (OTM).  We allowed 20% slippage to factor in the intraday volatility of option prices (which can be extreme) and we assume commissions at $ 1/contract (100 shares).

The returns on the matrix assume you are holding an underlying equity position and not just trading options. As a result, we make as much on the equity appreciation side as we do selling the options.

We use the Momentum ranking matrix to keep on the right side of the market...these are daily results but we could easily reformat the data to provide 2 day, 3 day or weekly rankings.  It is clear from the ranking matrix that things in motion tend to stay in motion so maybe this should be called the Inertia ranking instead. Regardless of what we call it, the ranking does provide a snapshot of what's hot and what's not.  By using a spectrum of volatility and beta ETFs we have a another set of eyes to help offset the risk of skewing our option positions in the wrong direction.

Next week I'll send out a little survey to subscribers to see how their interests lie. That will help me focus on  information relevant to your interests and avoid my digressions into other areas of trading/investing.

Over the weekend I'll post the new DN model adding XLK to the mix and shuffling the allocations a bit.
For now all the models remain in a HOLD mode although we are close to a new ACCUMULATE signal.