BUILDING A WORKABLE MODEL ADVICE
The test is to decide on how a portfolio below compares to various other strategies, passive, buy & hold portfolios --- and see which yields better returns over long periods.
PORTFOLIO GOAL:
- Maximize overall returns above passive buy & holds of several types, and benchmarks
- To maintain by years end a lower annualized portfolio volatility (std deviation) than all above mentioned alternatives
- Use of leverage will be minimized and will never be 100% weight invested in a market portfolio, but will fix broken positions with cash balances on a short term basis
- the idea is to beat buy & hold strategies of various kinds, beat the index, with maximized returns over all them while maintaining a lower annualized portfolio STD Deviation than all aforementioned.
- ALL FEES, transacation costs, and taxes will be adjusted by years end and compared.
- Not a mutual fund, so no need to buy back shares daily.
- Closed ended fund with lockout for a year from initial start
- fixed amount of shares. No reissues
- No bonds, except tactical positions in bond futures
- No credit derivatives
- Any Cash not in the market portfolio will be in liquid money market (reasons needing liquid cash in emergency scenarios leg downs)
- Transaction fees do apply
- Slippage in early exercises are only accounted for when re-entry to a position at another share price (fees & costs of re-entry accounted for)
- Some positions called will not seek re-entry, executive decisiveness used when looking for arbitrage on volatility plays and moves in short term stock;
- On Margin without T-3 regulation
- Years end will adjust for all taxes for all observed portfolios & will be considered in the return on investments annualized
daily, weekly, monthly, quarterly, yearly comparisons to similar buy and hold strategy against your portfolio
and plotting the returns against buy & hold, against index, and compare all risk metric ratios with charting of efficient frontiers of your active portfolio strategy against various different Buy & Hold portfolios resembling your tactical covered portfolio (described below).
TACTICAL ASSET COVERED PORTFOLIO CONSTRAINTS & CONSIDERATIONS
- You have an optimized portfolio model that allows short sales
- You're using a model that may seem like Black Litterman in that it considers excess risk premia that you use intuition to forecast daily.
- you account for shrinkage. in the model
- You are a selling only covered short options positions
- If you are short XYZ stock you would only sell a put that covers the position on a high volatility day and you're short vol
- if you are Long ABC stock you would only sell calls if you expect a shortfall or see extreme jumps up and you sell the high vol calls against it near the money
- You are allocated with a cash cushion of 40% to 20% at all times just in case you need to quickly short futures to hedge
- You want to be tactical --- and want to take advantage of short term moves by observing jumps and selling high options premiums against a stock position long or short the stock with a covered put or covered call
- You don't necessarily care if you get early exercise on your losing options positions --- but need to account for SLIPPAGE in those moments if you want to get back into a new position
- You want to model it with transaction fees on a % scale.
- You'd like to adjust your efficent frontier with slippage of covered positions (early exercise) and rolling active futures against it.
- You want to rarely if ever buy back short options against covered stock
- you want to be BETA HEDGING to a benchmark (Index, commodity, etc) or multiple benchmarks with a 60 day time correlation
- You'd like to calculate the sharpe ratio and drawdowns and max values at risk with active options positoins and their premiums & greeks
- You are not always going to be covering positions with options. With low vol. not always going to be expensive enough to justify selling premium on the positions. You would wait for the oppurtunity when it might come. it might not come
- you'd like to know all your costs of slippage early exercises and the cost of transactions and the price to re-enter the position later.
- you'd like to maximize dividend collections and keep the portfolio running without taking profit too early
- you want to close out losing bets quickly but not too quickly!
- how to determine when to exit a losing trade?
- You would only be trading around active liquid options market for the underlying, no giant bid:ask spreads just tight and liquid as possible underlyings
- continuously hedging only covered short premium options against those long & short near the money premiums on the fly on high volatility action that would be on a day when you might find 350% change in liquid options at near 25 delta or even 50 delta and doing nothing on other days
- You want to measure parameters of risk at end of day discretely quickly and account for all above scenarios
MORE THAN AMBITIOUS.- USE of parrallel GPU computing
- Compiled executable GUI dashboard access with backend SQL access
- a GUI with a dashboard, gauges, charts, and benchmarks against it on live tick data
- A dashboard that automatically adjusts continuous risk metrics on tick data such as rolling parametic VaR, CVaR, Jensen, Sharpe,Sortino, based on all your trading activity as the input.