500 shares and 200 on margin.
This weekend I spent eight hours working out a monthly algorithm and back testing against historical data going back to october of 2011. So my initial cash output is around 5k. With the margin on top of it, my algo gave a yield of 90% annualized. It uses shorting on xd-day, covering on two different time points during the month with accumulating the new long shares, and selling at some point in the last week before xd. Profits get reinvested as they accumulate to round 100 share quantities. The second buy point day is the only day I have to babysit the chart for opportunity.
The algo does not assume harvesting maximum and minimum, that would be impossible. It places likely limit orders, with an "if not, then..." adjustment either executed near the close for the day, or the open of the next day. Out of 45 opportunities for profit, three each month, there were six instances of losses and 39 instances of gains. Two losses on the short covering, and four on long sales. The average loss was $84[n=6] vs average gain of 113[n=39] on a starting investment of 600 shares.
The three instances per month:
Shorting on xd and then covering a few days later, buying half your long shares while covering the short and selling just before xd, buying long shares at the second timepoint during the cycle and selling on the same day as the other long share sale.
Another interesting result from the back test is that you should not hold for the dividend rather than show a loss on selling long shares. That happened around apr-May last year. Holding for dividends until price recovery point, would have resulted in a 3-4month hold and eliminated a three fold gain vs trying to avoid a one fold loss. That was a sustained dip in price. A flash dip in price would probably result in a logical hold for divy, but how do you know if it is going to be sustained or if it is a short term wave while it is happening?
The market slapped me hard on friday along with my broker, TradeKing, while I was testing a day trading hypothesis.The professional computers kicked my buttons. My loss was less than 1k, but still an appreciated slap. It was a wakeup call to be less impulsive and more disciplined. I was headed toward a gambling problem. this algo is my response to that slap. The truth is our friend.
Here we go for a twelve month test in reality so far the project is up $7.00, Earnings on this BDC come out in one week, should see a modest move up as the bdc's have been pretty good bets lately.
Thanks Doc and team.
Thanks for the research Luke. It is a great trade, IMO, if you do not get discouraged and quit. Those beginning in that Mar/April one bad run last year would have missed out on all the winning months.
FSC is supposed to miss on Earnings Feb 6th. I hope to be out by Feb 5th to avoid any disappointment. I hope to hit my limit sell before then...we'll see. With volatility at historical lows, we are not seeing much daily spread between the high and lows. We need that volatility to enable our limits to be hit on the flux.
I am expecting another stellar year using this trade. The absolute worse case scenario I can foresee is a 10% return matching buy and hold. Hate me if it fails but I think you will be liking it...;-)
I split the acquisition of the long shares between two timepoints. The later timepoint in the region recommended by you performed better than the early timepoint at day 3. I think day 3 outperformed day 10 one in four times. Also by covering the xd short on day 3 eliminated a bit of profit over covering around day 10. In a six months if day 3 never outperforms day 10, I will have to eliminate it.
This month day 3 beat day 10 by over a dime but we were too late with the discussion by then.
I was not aware that FSC is expected to miss. Thanks again. I will probably hedge by selling some earlier than my algo date.
I just read back through the string and I found that my results were very close to yours.circa 90%