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List,
Well we had a nice day, even though it didn't appear that it would go our
way early on.
As you might remember from previous posts, we use ValueLine to select our
stocks for our buys. We then go through a convoluted process, winnowing the
list down into something more manageable (at least by our definition).
Well, I hate to admit it, but it looks like we're not contributing anything
and are even causing ourselves problems.
There are three different portfolios that we needed to analyze: our initial
selections, our actual purchases, and ValueLine's entire list of
recommendations.
In looking at these numbers, it's quite obvious that we contributed nothing.
:) We can save ourselves a lot of work by using ValueLine's list and just
buy everything on it. Since there are substantially more issues, we could
only buy half as many shares per stock and would still need an extra $40k.
Thank heaven for margin. :)
Anyway, without going into the actual dollars we traded, here are the
results:
ValueLine predictions % Return 4.91%
Our Initial Selection % Return 3.64%
Our Actual Purchases % Return 3.61%
I should mention a couple of assumptions that we use. First, for either of
the portfolios we had a hand in putting together, we buy approximately the
same dollar value of each stock in order to try to equalize our exposure.
Second, using the ValueLine recommendations, we would have to cut that
dollar value in half and set a minimum of 100 shares of each stock (to
handle those stocks of extremely high valuation like RMBS, GLW, PMCS, ITWO
and SEBL).
Without our machinations, we would have been 36% better off! Anyway, this
gives us something else to check.
It appears that ValueLine did an excellent job (without our help) in
selecting our portfolio, but a 3.61% return for one day is still substantial
and doesn't count our S&P futures contacts.
I don't know if I posted it, but I was able to buy my OEX Calls (Jul 760
OEZGL) this morning at 33.5. They closed around 44 with a high of 45. Now
I wish I had bought more than 3, but my brother and I have set a dollar
limit (for each) for options trading in order to limit our risk during this
learning cycle. We also take our profits, sometimes a little early, but
always when we reach 100% in a few days. This is the embodiment of "take
the money and run".
It's interesting, but we traded about 35 times more money in stocks for 4
and a half times our option return. This is something else we're going to
have to look at, as it doesn't make a lot of fiscal sense. If we had put a
larger percentage of our capital into options, we would have made
substantially more money considering the return on the stocks was 3.61% and
the return on the options was over 30%. Of course, I'm not sure what volume
you can actually trade using options, so it might not be feasible to even
think along these lines.
We're still looking at writing naked options in order to get the time factor
working in our favor as well. I'm not sure how important this is
considering we're not in these positions that long. Today, we would have
sold in the money OEX Puts and SPX Puts (or maybe way in the money) and
would buy them back when we got our next sell signal. I'm not sure what the
prices were this morning for these Puts so I guess I need to start keeping a
log of opening ranges. Maybe the numbers will be in tomorrow's WSJ.
Maybe we'll get a run up here like the end of May and the first few days of
June. One can only think positive. :)
Happy trading,
Guy
Paranoia...you only have to be right once to make it all worthwhile!
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