Track Record Summary & Our Standard of Performance Reporting
Every day we publish actionable trade ideas that subscribers may consider for their personal portfolios. Our intent with these ideas is to get our readers thinking. One should not take or ideas blindly. We intend these ideas as our reader’s first step in the investment process. At the same time, we think it is important for our followers to know how we are doing over time. If you are looking for a service that never has a losing trade, you have come to the wrong place. We bring discipline and diligent to our proprietary investment process. We only pursue those ideas where we believe the odds are in our favor. Having the odds in our favor does not guarantee the trade will be a winner. On the contrary, there is always a chance a trade will not work out. Over time, however, we believe our method of finding inexpensive investments with technical setups and sentiment in our favor is our foundation for a value-added contribution to our readers, which over time by generating superior risk-adjusted returns. Our results summarized below support that proposition.
We present our ideas here at TheOptionsEdge.Com and we identify this portfolio as the TOE Trades. In 2016 and 2017 we wrote for Action Alerts Options over at TheStreet.Com. We identify this portfolio as the AAO Trades. The following table summarizes the performance of all our ideas since we started publishing our ideas in 2016. We have broken up the analysis into three sub-components. (1) Trades that are still open, (2) Trades closed so far in 2019, (3) Trades closed so far in 2018, and (4) those trades closed in 2017. (All trades suggestions for the Action Alerts Options (AAO) Service at TheStreet.Com are now closed.),
Computing returns for options trades in a manner that is comparable to stock portfolios are somewhat challenging. Some people like to compare gains and losses to the price of the underlying security. By this method, the average annualized return enjoyed was 4.7%. It is worth noting that this method is not quite comparable to a traditional buy and hold or a stock trading portfolio, as the options strategies we use generally have much less risk compared to a stock holding. An alternative method is to compare the gains and losses on the options trades to the Capital at Risk. This method is more comparable to the risk of holding stocks and captures the asymmetric risks and leverage associated with options. By this measure, the tactical portfolio generated an annualized return of 20.8%.
It is clear that we had a tough time in Q4 2018 and so far in 2019 as volatility has reigned supreme where cheap stocks got cheaper and expensive stocks got more expensive. While frustrating, we stick to our discipline where value and price action align and an options strategy designed to capitalize on the thesis at hand. This has worked for us over time, and we are sure it will continue going forward.
Method of Computation
The computation of return as a “Percent of the Underlying” is relatively straightforward. We simply use the formula:
Return as a Percent of the Underlying = (Return in Dollars) / Stock Price.
To compute the average, we weighted the returns by the stock price. This way, we give a bigger contribution to 100 shares of a $50 than 100 shares of a $20 stock. To compute the annualized return, we divide the return by the fraction of a year the trade was held. The annualized average is the annualized returns weighted by both the stock price and the time the trade was held.
The computation of the return as a “Percent of Capital at Risk” was a bit more complicated. We use the following formulas:
Spread: Return as a Percent of Capital At Risk = (Returning Dollars) / (Difference between Strikes – Credit Generated)
Bullish Risk Reversal: Return as a Percent of Capital At Risk = (Return in Dollars) / (Put Strike – Credit Generated)
To compute the average, we weighted the returns by the capital at risk. To compute the annualized return, we divided the return by the fraction of a year the trade was held. The annualized average is the annualized returns weighted by both the capital at risk and the time the trade was held.
You probably want to know more about the individual trades we made, particularly if you are evaluating our service for the first time. The following links will take you to tables that summarize the trades we discussed. Those tables will have the date of trade initiation, trade structure and the prices quoted in the marketplace at the post (usually the closing price the day before the article is posted). This leads us to the profit on a trade by trade basis. The performance of the closed trades is available for everyone to evaluate. The summary of open trades is strictly reserved for our subscribers.
- The Options Edge Open Trades
- The Options Edge Closed Trades in 2018
- The Options Edge Closed Trades in 2017
- Action Alerts Options (TheStreet.Com) Trades Closed in 2017
- Action Alerts Options (TheStreet.Com) Trades Closed in 2016