Stocks & Commodities V. 33:1 (34-37): From Greed & Fear To Grow & Protect, Part 2 by Allen Rehert

Stocks & Commodities V. 33:1 (34-37): From Greed & Fear To Grow & Protect, Part 2 by Allen Rehert
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From Greed & Fear To Grow & Protect, Part 2 by Allen Rehert

The Road To Recovery

In part 1 of this two-part article, you were introduced to rules you could apply in various markets, including markets recovering from a decline. Here in part 2, well see how well the rules work.

Last month, I described how and why I set out to build a buy write strategy using combinations of stocks and call options with the goal of making at least a 10% annualized return. My objective was to find stocks that are unlikely to decline substantially, but if they did, I would use my recovery rules from part 1 to allow my buy write investments to track or improve upon the recovery of the underlying stock. For the strategy, I used a selective screen to tell me what to buy and I developed conditional rules to tell me when to exit. Here, Ill describe how I tested the strategy.

TEST CASES

To test my strategy, I analyzed the expected behavior via simulation. I used the Black-Scholes equation to value options using these parameters:




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