Reverse engineering a profitable C2 strategy

[Pekelo]

From time to time I look up strategies on C2 just to see how they are doing. One of the longest running profitable option strategy is R Option. In the last 6 years made very good money in 5 and lost only 3.5% last year.

I am not a big believer in reverse engineering, but this one was so easy to do so, I figured I would share it. After taking a quick look at the trades, you can realize it is a simply put selling on the SPY strategy, thus the positive returns of the last few years.

So let's save $600 monthly (the subscription fee) and see what he is doing.

On January 7th (Spy is around 253) he sold the February 15 puts at the 242 strike. Not surprisingly a week later he closed it 45% lower. The other trades are pretty similar, to summarize it:

Sell SPY puts 2-4 weeks out with a strike price 10-15 bucks lower than the current price. That is it. Oh yeah, naked selling, of course.

So this is what you get for 600 bucks. It works until it doesn't...

 

[Robert Morse]

This is one of the problems with SMA that I have discussed with managers that are choosing SMA over a fund. (I'm not going to refer to the C2 type programs, but it is the same problem). I have seen investors enter a CTA program with $100,000 but run the same strategy one day delayed with $2mm. I think this is terrible and dishonest, and why pooled accounts are often a better options for the manager.

 

[R1234]

This is one of the problems with SMA that I have discussed with managers that are choosing SMA over a fund. (I'm not going to refer to the C2 type programs, but it is the same problem). I have seen investors enter a CTA program with $100,000 but run the same strategy one day delayed with $2mm. I think this is terrible and dishonest, and why pooled accounts are often a better options for the manager.

I've done that in the past with several CTAs - I invest with them and then mirror the trades on a one day delayed basis.

I ended up losing money in every case as I watch the strategies turn into losers. I have an uncanny ability to pick managers at their peak.

 

[Handle123]

I've done that in the past with several CTAs - I invest with them and then mirror the trades on a one day delayed basis.

I ended up losing money in every case as I watch the strategies turn into losers. I have an uncanny ability to pick managers at their peak.

I have bought systems in past that often had traded at least five years and monitored by "Future's Truth", so back tested all, so instead of getting into them doing a run up in equity curve, I found "mean" drawdowns of each system and when each hits this mean, then automation will allow trades in that system, it continues till it make new equity highs then turns off and waits for next drawdown.

Have to every considered doing the same with CTA's you follow?

 

[R1234]

I have bought systems in past that often had traded at least five years and monitored by "Future's Truth", so back tested all, so instead of getting into them doing a run up in equity curve, I found "mean" drawdowns of each system and when each hits this mean, then automation will allow trades in that system, it continues till it make new equity highs then turns off and waits for next drawdown.

Have to every considered doing the same with CTA's you follow?

Never thought of doing that. Although i have tested fading their picks when they been sucking it. Problem is when they are in drawdowns many CTAs tend to tweak their model so it becomes a bit of a moving target.

 

[Handle123]

Never thought of doing that. Although i have tested fading their picks when they been sucking it. Problem is when they are in drawdowns many CTAs tend to tweak their model so it becomes a bit of a moving target.

Can try moving average on their equity curve.

 

[R1234]

Can try moving average on their equity curve.

I've found that if you're going to use moving averages on equity curves it needs to be a really long term endeavour in order to work. For it to be stable I find that you need to track at least a 24 month or 36 month moving average on the monthly equity curve. Is that what you have found?

 

[Handle123]

I've found that if you're going to use moving averages on equity curves it needs to be a really long term endeavour in order to work. For it to be stable I find that you need to track at least a 24 month or 36 month moving average on the monthly equity curve. Is that what you have found?

I never tracked CTA's before, but use to trade Mutual funds in 80s and use a moving average and usually worked well. I do moving averages on my equity curve but more for increasing size, as in life, there is always reversion to the mean, so I take increase when curve hits the moving average and seeking bounce.

 

[Handle123]

I've found that if you're going to use moving averages on equity curves it needs to be a really long term endeavour in order to work. For it to be stable I find that you need to track at least a 24 month or 36 month moving average on the monthly equity curve. Is that what you have found?

Also, having three equity curves helps, closed positions equity, open equity positions and total equity. Long ago freak me out I would rollover some futures position that had huge profit in that contract month, then rollover into next front month and that would then deep pullback for couple months then have to do another rollover with that position being deep in hole, but overall position was profitable.

 

[Pekelo]

I have seen investors enter a CTA program with $100,000 but run the same strategy one day delayed with $2mm. I think this is terrible and dishonest,

Your post is kind of off topic. C2 doesn't really limit or care what an investor do with the info of the trades. Neither the Trade leader nor C2 get more money if more capital is invested behind the signals.

If it wasn't clear, I criticized a particular strategy because:

1. It is over charging for a very simple strategy, where market timing isn't involved.
2. It had the luck of picking a strategy that is good for bullmarkets. Nothing indicates this strategy would also work in a bear market, as shown by last year's performance.