Anybody joining me on the FSC 9 day Phenomenon?? I missed out last month on 47 cents, for fear of the FC deal. As I outlined a few months ago, FSC has a very weird(because it is so consistent) trading pattern. I love history repeating itself. The longer I live the more it repeats, over and over and well, you get the idea. Like Buffet said, "the market always comes back". I didn't say that, he did...;-)
FSC is pretty uncanny in how it keeps coming back, and back and back to the swoon 9 days after EX date(monthlies) ...( buy on that date), and sell the day before EX date. You would have almost tripled your money over buy and hold, just this past year(12 cycles of this trade).
Last two months before the last were duds, but hey, 2 and 1/2 times for the year...;-)
Check it out. Swooned today. Look for the low of the month on Friday, the 25th. Buy 10,000 shares, as an example. This past month you would be $4700 richer. Hey, you can lose also, this month with the debt ceiling thing and all, but, like I said, fear kept me from making an extra $4700 this past month.
What I like about low priced, consistent stocks like FSC, is that they have a very tight trading range. Take your loss, if there is one on the DBEX or hold(I sell), and trade the next month, doing the same thing. The deal is it doesn't take too many 25% years to make up the entire PPS(4), then you are playing with the house's money even if the PPS goes to zero.
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'm back from Honduras - survived the sharks (great pics). I'm going to try and find an entry point tomorrow for 5,000 shares. Question - if FSC happens to be below your purchase price the day before EX do you hang onto it and take the divvy?
Welcome back Garbonzo..what a trip!!
Sounds like you had a great time! Regarding your question:
"" if FSC happens to be below your purchase price the day before EX do you hang onto it and take the divvy?""
That is a great question and one that I only briefly touched upon in the past. If you are going to follow the historical scenario of how I designed this particular trade, you must take your profit or loss before each EX. Whether it is on the open, the day before or whatever...I looked at the close on the DBEX for this model.
The problem, if you hold, is that you suffer the potential loss of capital, as was seen in 2011, when the PPS lost 2.00/share. By escaping pre-EX you do not suffer this loss(HISTORICALLY). We know the disclaimers about history not being a predictor, yada, yada.
So, I am gone with a profit or loss prior to EX.
It takes resolve to take your loss, and if you choose to take the dividend you might come out ahead. Following this model, you will sell...
I will be in it with you Doc, going to trade this one in my taxable account so I can short on XDIV, plan on doing all parts of the trade and keeping records on it for the year. It will be interesting. Also buying half position today and shopping for 2nd half. Bow
I'm joining you with a small position in FSC tomorrow, are you entering at opening or end of day?
I'm also shorting BMY via long puts and will add more if it keeps climbing.
RIMM has climbed a lot in anticipation of the new blackberry coming out end of month. I want to take a short position but the put premiums are so crazy high. I tried to short calls but my broker doesn't let me. What do you do when you want to take a short position on a stock with high premiums other then shorting shares?
The caveat I added to the short/long FSC trade of holding for .40 each entry had you making .80 with .40 short on the x day on Nov 13th to Nov 14th and then going long on the 14th to .40 gain and out on Nov 16th. 13th to 16th, three days and .80. Compare to 8 months of dividends to get the same...;-)
So to say again Short on the open of the Ex date, placing a limit buy to cover, for .40 lower on the short PPS. If hit before the 9 day long entry, go long from the exit price on the short, and enter a sell to close all shares at .40 above your buy PPS. If not hit by 9th day, double down Long and hold for .40 gain from the new buy PPS. Doing this returned almost 100% on each of the last two years.
AGNC message board....who would have guessed....;-)
I decided to back test FSC for 2011, starting with the EX on Dec 31, 2010 up until the DBEX on Jan 12, 2012. The PPS declined almost two dollars during that time from 12.14 to 10.32. Please keep that number in mind, again, a two dollar drop or roughly 15% decline on an approx 10.5% yield. Not Good for that year, is what I am trying to say...;-)
Following my suggested trade of shorting on the open of the EX day and covering on the 9th trading day post EX, immediately going long and selling on the next DBEX, here are the results for the above time period:
Short trade profits: 6.13
Long trade profits: 5.20
Total profits: 11.33 or 92% based on the opening PPS on Dec 31, 2010 of 12.29. A 100,000 investment returned $92,000. Really hard to argue with this trading idea...
It seems half the time the best buy is day9 or 10 xd inclusive and the other half is third day xdiv. So a person could do the acquisition in two lifts. Day 3 and day 10 xdiv day inclusive.
Only once in the last year did it crest more than five trading days before xdiv. A loose rule of thumb seems to converge at the market open two days before xd.
If you would have been lucky enough to hit the exact high and low, the last six months averaged 70 cents. A person should be able to get within 15 of each vertex and do it for 40-50, right where Doc advertized it. The nov/dec cycle had a spread of 107.
This cycle, with washington drama, the low could hit later than ten days out.
I am going to sit out this cycle keeping my powder dry in case there is a decent selloff, but when I do this one, I think I will margin up on it.
ARR is not as reliable as this one.
I agree Slegermark,
I thank Jess for getting me looking at the other end of it as far as shorting on the open of EX date. I just ran the numbers for doing this, with the caveat of covering if .40 gain before X+9(If not, just covering on the X+9 and going Long. Then selling at .40 gain, and if not, selling on DBEX.
From last January 2012 to the last EX date, you got 2.70 on the Long trade and 1.82 on the short for a total of 4.52(wow), or 44.2% yield on the original 10.22 PPS(Jan 11, 2012 open).
Pretty impressive!! Thanks for everyone's input...takes a village... right YBF?...;-)
So the trade is coming up a week from this Friday(25th). A few mods. Place a limit sell order after your purchase for .40 above the purchase price. Historically, this leads to even greater gains as you catch the intraday highs during the month.
ARR has the same historical pattern, but 5 days after EX for purchase, which is this Friday(18th). Buy and place a limit sell for 20 cents above purchase. This is 2.5x the regular dividend(.08) and historically has returned the greatest reward, oftentimes only holding for a few days on both of these trades.
Do your own DD and Good Luck!