Investing Research Articles

The notion that individuals are at a disadvantage compared to big traders in constructing and maintaining a diversified portfolio of specific stocks seems reasonable.

For the strike-rolling process you describe to enhance returns over the long run, the incrementally accrued time value must more than offset the combined effects of: (1) the incremental trading frictions (principally bid-ask spreads); and, (2) the increased risk of in-the-money expirations.

The net of this research appears to be that only very low-cost traders (such as market makers) can effectively exploit the anomaly.

It seems reasonable to infer from this analysis that many people “renting” automated trading strategies do not do very well and that they may underperform the broad stock market as a group.

IRS rules involving wash sales and options as described in Publication 550 (2008) are complicated.

…value-beta and momentum-beta relationships can and recently have reached such extremes that value and momentum strategies may impound untended assumptions about the future market trend.

CXOadvisory.com has not developed any screens or models to implement or replicate this approach.

Results suggest that the TOTM return is roughly zero in falling markets, so it can still support options selling (but with no safety margin for at-the-money options). Based on this result, selling options only when above the 200-day SMA would likely reduce risk but result in long intervals of inactivity.

A reader suggested: “I know you’ve looked at Didier Sornette’s work in the past, but I think it would be worthwhile to look at his work again. His latest is ‘Bubble Diagnosis and Prediction of the 2005-2007 and 2008-2009 Chinese Stock Market Bubbles’, with abstract as follows:”

…evidence from simple tests on a limited dataset do not support a belief that net money flow is usefully predictive of weekly or monthly stock market returns.