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Apple: Even Poormen Achieve Alpha

 

Prerequisite: Read, skim or scour my previous article titled -- "An Apple Story: Alpha, Algo's and a Poorman"

I am writing an informal instablog as I only want to give the results from full year 2012 while adding a few missing items.

 

So How Did Year Two Fare?

If you bought Apple on the close of 12/30/2011, you paid $405.00. Your buy and hold YTD result is a very respectable 104.19 point gain or 25.7% return. (for the purpose of this article, I will say Apple closed 2012 at $509.19) To achieve this, you carried market or time risk equaling 365 days.

 

How Did The Poorman Manage?

The long only side was able to squeeze out 253.80 points or 62.6% return using the same $405.00 basis. This was on ~208 days of market or time risk. So, not only did the long side double the stocks gain, it did it on 157 days less.

The stock lost 180.69 points on a Wednesday close - Friday close basis. Since The Poorman goes short on Wednesday close, this is a 180.69 point or 44.2% gain. If we combine the long and short side to complete the full algo, 2012 reported a 434.49 point or 107.2% gain.

 

Screen Shot 2012-12-29 at 4.35.21 PM

 

Read the full story (here)

 

 

 

  • Dan Smith

    Travis, I liked your idea of the poormans algo. So much so I created a table and chart showing the algo over two years. It is constantly updated, so it shows 2 years back from the current date. As of today, I show a 77% gain over that 2 year period. This includes the dramatic price drop in October 2012. Here is the chart. http://maximum-pain.com/poormans-algo.aspx

    You sell on Tuesday to avoid earnings release. But, the most recent AAPL earnings where Monday 1/27. AAPL declined sharply after earnings. As a result, the most recent week shows a 7% drop. How would you adjust the algo if AAPL no longer releases on Tuesday? Would you adovate selling on Monday, Tuesday or Wednesday?

    • Cool. Was built around ER being Tues after close. That changed last year. I either sell prior or short after. On this graph you will see the asterisks. This past ER I sold Mon close. On twitter from jan 24th I metnioned will sell mon close. That’s not cherry picked cause look at that 2013 graph when wasn’t short the ER where would of benefited it like $50.

      http://tech.fortune.cnn.com/2013/11/09/apple-options-poormans-algorithm/

  • if it goes up 253 and drops 180 at the end it should be up $70 ? so why is the stop dropping =P i know because too expensive and we are all playing the options market

  • captainboom

    Do you think similar percentage returns could be achieved by using DITM calls and/or puts? i.e. Use options with delta close to one? What about trading around long DITM calls by selling a higher call short and buying back as necessary?

    • I wouldn’t compare the two strategies but I own DITM LEAPS and sell calls against them all the time. I have done this strategy for many years. It beats the stocks returns.

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