Poorman’s Algorithm says Buy AAPL on Friday’s Market Close and Sell APPL on Tuesday’s Market Close. Travis Lewis, an independent investor who studies the Apple (AAPL) options market, has long maintained that trading in PUT Options and CALL Options has become the tail that wags the underlying securities’ dog. This is especially true for Apple options, the most heavily traded derivatives by volume.
This Article is "recreational" in nature describing what some "week-traders" may do with certain stock issues. Have some fun and read on. However, we are NOT suggesting an investment strategy be adopted, nor any financial risk be taken.
To test this theory, Lewis began buying and selling Apple shares using what he named The Poorman’s Algorithm, and tracking the results. If this is a tradable pattern, one should be able to make money by doing the opposite: i.e.,
★ Buying AAPL stock at the close of trading Friday and
★ Selling AAPL stock at Tuesday’s close
★ The Poorman’s Algorithm has paid off nicely for each of the last three years
★ The Algorithm is called The Poorman’s Algorithm, because you don’t need a PdD in Finance, nor huge sums of money to do it.
If you bought Apple on the close of 12/30/2011, you paid $405.00. Your buy and hold YTD result is a very respectable 104.19 point gain or 25.7% return. (for the purpose of this article, Apple closed 2012 at $509.19) To achieve this, you carried market or time risk equaling 365 days.
Consider using a low-cost broker to trade this set-up. Something like Interactive Brokers (IB) or Tradestation. These two brokers charge $1.00 to trade 1 or 100 shares. This Algorithm, Algo, is pure speculative trading. It is based on historic price trends left in the wake of Apple’s heavy options activity.
How to mitigate risk? Take a lump sum of money to use as your, in effect, "stop-loss." As an example; let’s say you only wanted to risk a loss of $5K. Use a lump sum account of $10K. When it reaches $5K liquidation value, one would close-up shop. In this example, buy only ~$5K worth of stock all year. Since we need to use the same exact share count all year, this would equate to 8 to 10 shares. The reason one would buy this share count, is due to AAPL’s stock price fluctuation. 8 shares is $4K @ $500 and 10 shares at $500 is $5k. Select the share count that you are comfortable with.
One may modify this Algo anyway you’d like. For example, using Wednesday open vs Tuesday close greatly outperformed in 2011 and 2012. This was mainly due to Apple’s earnings releases being on Tuesday after the close. We set it up originally on a Tuesday cycle to stay away from earnings risk. We also used Tuesday close as this reduces time risk in the market. We personally still use Tuesday close.
We’ve gone back and forth modifying the Friday buy. Originally we used the market close. Towards the end of summer we switched to buying at 12:30 PM Eastern, because by the time Friday close comes, all front-week calls are closed out, lifting the albatross and letting Apple rise into the close. Also 12:30 pm, just represent the market’s halftime, not some secret. We’ve switched back and forth on this 12:30 pm Eastern or Friday closing time. We don’t recommend constantly altering this; one needs to become as robotic as possible.
How Did The Poorman Manage? The long only side was able to squeeze out 253.80 points or 62.6% return using the same $405.00 basis. This was on ~208 days of market or time risk. So, not only did the long side double the stocks gain, it did it on 157 days less. The stock lost 180.69 points on a Wednesday close – Friday close basis. Since The Poorman goes short on Wednesday close, this is a 180.69 point or 44.2% gain. If we combine the long and short side to complete the full algo, 2012 reported a 434.49 point or 107.2% gain.
Below is a Link that will give you the AAPL stock Open, Close for every trading day from January 4, 2010 through November 8, 2013. Suggestion, select a range of dates and experiment with The Poorman’s Algorithm.
http://ichart.finance.yahoo.com/table.csv?s=AAPL&a=00&b=1&c=2010&d=10&e=10&f=2013&g=d&ignore=.csv
Below is a sample of the portion of the data from the above link:
Note. We are not in the business of giving investment advice.
We are not in the business of promoting any stock or issue.
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