A Trend Option Strategy For ETF Investors (SPY, SHV, .INX)
I previously detailed an academic study on a trend trading option strategy for investors (special thanks to Steve at CXO, one of the best free financial sites available). I’m trying to put together a way to track the strategy on my site. It will be a work in progress and I want to make the tracking as realistic as possible so input is appreciated.
In a nutshell, the strategy is invested 50/50 in 1) SPTR (.INX) (S&P 500 total return) and 2) cash, rebalanced on golden/black crossovers. It switches between selling at the money calls and puts equal to the value of 1 and 2 on golden/black crossovers on SPTR (.INX). A golden cross occurs when the 50 day moving average crosses above the 200 day moving average. A black cross occurs when the 50 day moving average crosses below the 200 day moving average. Calls are sold during black crosses and puts are sold during golden crosses.
Currently we are in a ‘golden cross’ period, although in some of my other writings I am cautious at current levels. However, the purpose of tracking this strategy is to track its success over time regardless of my own personal opinion. It has tested well historically.
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I will be using (NYSE:SPY) and tracking dividends to represent the total return of the S&P 500 (.INX) used in the study. For cash, I will be using (NYSE:SHV), a short-term bond ETF and tracking dividends.
Option expiration are the third Friday of the month and for June this was last Friday. I think it makes most sense to update this strategy using either the opening or closing option prices on the Monday following option expiration each month so I am tardy starting this month. I will most likely assume option positions are bought to close the position on options expiration day. The strategy will be tracked on the right hand side of my site for free for those interested in following along. Slippage and taxes will not be tracked and I am debating on tracking commissions.
For this month I used the closing options prices for (NYSE:SPY) on Wednesday June 23rd.
Written By Scott from Scott’s Investments
I am an independent investor blogging at Scott’s Investments (http://scottsinvestments.blogspot.com/). My site focuses on consolidating and tracking free online investment resources for the public with an emphasis on ETFs, portfolio/trading strategies, and macroeconomics.
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