.

Poormans Algo

The following is chart of the Poormans algo created by Travis Lewis. You can find a full explanation of the algorithm on seeking alpha or on aaplpain.com. What the chart below shows is the result of the long-only side of the algorithm for the last 24 months. The algorithm which says the heavily traded weekly options become the tail wagging the dog, can be summarized as this.

Open Date
Open Price
Shares
.
Close Date
Close Price
Percent Change
Portfolio Cash Value
Portfolio Change
10/21/16
$116.60
8.70
.
10/25/16
$118.25
1.42%
$1,014.15
1.42%
10/28/16
$113.72
8.74
.
11/01/16
$111.49
-1.96%
$994.26
-.55%
11/04/16
$108.84
9.32
.
11/08/16
$111.06
2.04%
$1,014.54
1.49%
11/11/16
$108.43
9.24
.
11/15/16
$107.11
-1.22%
$1,002.19
.28%
11/18/16
$110.06
9.25
.
11/22/16
$111.80
1.58%
$1,018.04
1.86%
11/25/16
$111.79
9.08
.
11/29/16
$111.46
-.30%
$1,015.03
1.56%
12/02/16
$109.90
9.24
.
12/06/16
$109.95
.05%
$1,015.49
1.61%
12/09/16
$113.95
9.01
.
12/13/16
$115.19
1.09%
$1,026.54
2.70%
12/16/16
$115.97
8.93
.
12/20/16
$116.95
.85%
$1,035.22
3.54%
12/23/16
$116.52
8.94
.
12/27/16
$117.26
.64%
$1,041.79
4.18%
12/30/16
$115.82
9.02
.
01/03/17
$116.15
.28%
$1,044.76
4.46%
01/06/17
$117.91
8.95
.
01/10/17
$119.11
1.02%
$1,055.39
5.48%
01/13/17
$119.04
8.94
.
01/17/17
$120.00
.81%
$1,063.91
6.29%
  1. AAPL options are opened at the beginning of the week. The MM writing the option buys the stock as a hedge and creates buying pressure.
  2. AAPL options are closed at the end of the week. The MM who wrote the options closes the stock hedge resulting in selling pressure on the stock.

To take advantage of this trend, the algorithm states simply that you should buy the stock at the market close on Friday when the option closing has driven the stock price down. You are buying low. Then, you sell the stock 4 days later at the market close on Tuesday. Option contract buying has created buying pressure and driven up the stock price. Travis argues this provides better returns than a buy & hold strategy while reducing risk from 7 days per week to 4 days per week.




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