CBOE long @ 197.04 - it may be the perfect stock for meCBOE is short term oversold. That is enough reason for me to buy it. But there's more. This might be the absolute perfect stock to use my "first profitable close" exit strategy on. Both exit strategies work well. My original one produced a 42-3* win rate over the last 2 years (backtesting) with all 3 “losers” being the last 3 trades that haven’t become profitable yet, while the first profitable close strategy was 43-2*.
This is a stock that rarely stays oversold long, and bounces back quickly in most cases. In an albeit short 2 year backtest, the highest number of lots I'd have held at once was 4 and the average was 1.4, meaning almost always, they were being sold the next day.
In fact, the average holding period for the 45 trades taken in that time would have been 1.55 days and 69% of the trades closed in 1 day, using the first profitable close. Remarkably, the longest I'd have had to hold a lot before it became profitable in the entire 2 year backtest period was 5 days and that only happened twice.
Now as I mentioned in my NYSE:VZ idea yesterday, there is usually a tradeoff with this exit strategy. Lower average profits and slightly lower profits per day held in exchange for quicker cycling of capital. But I mentioned that isn’t always the case, and CBOE is a perfect example of that.
The big reason is the HUGE difference in trade length. ORIG exit strategy tied up capital 9x as long, on average, as FPC (first profitable close) did.
Avg. hold period ORIG = 14.1 days (longest hold - 106 trading days)
Avg. hold FPC = 1.6 days (longest hold - 5 days)
Overall gain per lot traded favored ORIG over FPC, +2.8% vs. 1.2%...BUT...gain per lot per day held (quantifies the tradeoff between hold length and profit) was HUGELY in favor of FPC here due to the dramatically shorter hold period.
FPC = +.78%/lot/day held
ORIG = +.20%/lot/day held
Both of those numbers are very good, but the FPC one is off the charts.
A +.78%/day held return is a 197% annualized return. That’s moonshot microcap returns, not stodgy, safe, dividend paying options exchange company returns. Now realistically you're not actually going to have a 197% return because you don't get these trades every day. But it's a measure of how fast your money is making you money. Usually ORIG marginally beats FPC in this situation, but the speed at which CBOE can return capital profitably makes the FPC exit a much better play with this one.
I haven't done an all-time backtest on this, but you can bet I'm going to this weekend. I suspect the difference between the two won't be as dramatic over the long haul, but it's worth noting that there were no long, grueling downtrends in CBOE over the last 2 years, and FPC outperforms ORIG during those. I'll post the results of that as an update to this idea either over the weekend or on Monday, depending on how busy my weekend gets.
By the way, I bought a double lot because it was oversold yesterday too and I missed it. The last time it was oversold 2 days in a row was May '23. I will add to the position whenever it is oversold and I will sell any lot at the close of the first day it becomes profitable.
So try to resist following me on this trade, since this isn't financial advice. It's edutainment. You should DYOR before investing or trading any of your own hard earned money. Have a good weekend everyone!
Stay profitable, San Diego. -Ron Burgundy
