PowerOptions offers many tools to help options investors find lucrative trades and develop strategies. One of the most powerful and exciting tools it offers its customers is the SmartHistoryXL back testing tool.
Audio Podcast:
An audio podcast of this article is available at: poweropt.com/podcasts/2007_07_18_SmartHistoryXL.mp3
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This tool allows customers to test elaborate, quirky, elegantly simplistic, or any other creative theory against historical data. It is often said the past is the greatest predictor of the future, and today in the PowerOptions weblog we will put this theory to the test by developing a search criteria with good past performance and then identifying current option trades using the same search criteria.
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What is SmartHistoryXL?
SmartHistoryXL allows you to back test stock/option searches on data and search settings from the past. From the search results, you can evaluate the returns that would have been possible if you traded those positions on that date and held until the present, expiration or any day in between.
The purpose of this tool is to help you develop search settings based on back-testing with the hope that those search settings used today will produce option positions that will perform in a similar fashion in the future. Past results are no guarantee of future results, but you certainly have more knowledge about your choice of settings if you know how they would have performed in the past. These tools will show you how your choices performed and compare them to the market in general. You can see the returns for each of the stocks screened, on all positions, or selected positions.
Back Testing Scenario:
In the following case we used a search asking for covered call options with some of the following criteria.
High analyst rating
Good Earnings per share growth
Positive Price to Earnings Ratio
The aim of the three items listed is to identify undervalued stocks. There is more, of course, to identifying undervalued stocks, but this is a blog entry and not a 200-page book.
Results:
Below we have the results of 4 randomly selected historical data searches using the SmartHistoryXL function.
| Back Tested Covered Call | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Date | Avg. % Return |
Success Rate |
QQQQ% Return |
SPX % Return |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| April 5 to June15th 2007 | 7.2% | 65% | 6.6% | 5.8% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| January 10 to March 16th 2007 | 2.9% | 85% | -4.2% | -2.0% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 1 to November 17th 2006 | 4.0% | 100% | 11.8% | 6.4% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| May 1 to July 21st 2006 | -0.2% | 75% | -16.1% | -5.2% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short Analysis of Results:
With our search, we found in three of the four cases listed we did better than the S&P 500 index (SPX) and the NASDAQ 100 index (QQQQ). In the case where our search didn’t do as well, we still would have potentially earned 4%.
In addition, over 80% of the trades identified returned at least some profit in the back tested scenarios listed.
Looking Ahead with this Scenario:
Next, we ran the search with our SmartSearchXL engine. It yielded some interesting results. All of the September option trades listed below have 67 days until expiration. In the spirit of brevity, we parsed the list to only include the top 4 candidates. A brief profile on each of the companies returned is included below.
| Covered Call Search | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Company Name |
Symbol | Stock Price |
OPTION | Strike Info |
Option Bid |
% Dnsd. Prot. |
% If Unch. |
% If Asgnd |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DivX Inc. | DIVX | 15.06 | QDWIC | 07 SEP 15.0 (67) | 1.4 | 9.3 | 9.8 | 9.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Christopher & Banks Corp. | CBK | 16.73 | CBKIW | 07 SEP 17.5 (67) | 0.7 | 4.2 | 4.4 | 9.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stein Mart Inc. | SMRT | 11.74 | BMUIV | 07 SEP 12.5 (67) | 0.45 | 3.8 | 4 | 10.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Genenntech Inc. | DNA | 74.74 | DWNIO | 07 SEP 75.0 (67) | 2.75 | 3.7 | 3.8 | 4.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DIVX – DivX, creates media applications – you may even have a DIVX player or CD burner on the computer you’re using right now. It offers video compression-decompression software, which can be plugged into video software applications and to allow users the ability to create and play videos.
Competitors for DIVX include: Apple Inc. (AAPL), Google Inc. (GOOG), and Microsoft Corporation (MSFT).
CBK – Christopher & Banks Corporation operates retail specialty stores for women. Their website is www.christopherandbanks.com if you’d like to take a look at their stylish crochet cardigan or denim Capri pants.
Competitors for CBK include: AnnTaylor Stores Corp. (ANN), Charming Shoppes Inc. (CHRS), and The Talbots Inc. (TLB).
SMRT – Stien Mart offers fashion merchandise in the United States. Their line of Skinny Bangle Bracelets and thirsty bath towels can be viewed at www.steinmart.com.
Competitors for SMRT include: Macy’s, Inc. (M), TJX Companies Inc. (TJX), and Belk, Inc. (private).
DNA – If you don’t know your endoplasmic reticulum from your mitochondrial matrix, you can bet the eggheads at Genenntech Incorporated do. More formally, Genenntech engages in the discovery, development, manufacture, and commercialization of biotherapeutics. And Jim Cramer has been touting this stock even though it has been losing altitude.
Competitors for DNA include: Amgen Inc. (AMGN), Bristol-Myers Squibb Co. (BMY), Glaxosmithkline plc (GSK), ARIAD Pharmaceuticals Inc. (ARIA), BioCryst Pharmas. Inc. (BCRX), Bioenvision Inc. (BIVN), Celgene Corp. (CELG), Genitope Corp. (GTOP), ImClone Systems Inc (IMCL), Medarex Inc. (MEDX), Nuvelo Inc. (NUVO), Regeneron Pharma. Inc. (REGN), Savient Pharmas. Inc. (SVNT), YM BioSciences Inc. (YMI), and ZymoGenetics Inc. (ZGEN).
For more information about how to identify and research great option trades, visit the PowerOptions website. There you will find the data you need to make quick, clear, and informed decisions. You can trade knowing you have found the best investment. Also, PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades. PowerOptions‘ premium customer support is second to none in the industry.
They can be easily contacted when you need them at their toll-free number to answer customer questions. Call them now toll free at 877-992-7971.
PowerOptions provides a free 14-day trial of its service. So join PowerOptions today, and you too can start reaping the benefits of the covered call investment strategy. PowerOptions‘ sister company PowerOptionsApplied provides expert stock option trading recommendations. PowerOptionsApplied specializes in covered calls, naked puts and iron condor stock options strategy recommendations. PowerOptionsApplied provides a 30-day risk free trial of its service.
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