As we forward test, it's important to point out that Mike and I are exclusively using options as opposed to purchasing shares of stock, also Mike and I tend to buy options at different deltas. I prefer ( or am forced for lack of capitol) to purchase OTM ( out of the money) options... typically around the .30 delta. Mike, on the other hand prefers to purchase options ITM (in the money) or close to it, he generally selects an option close to .70 delta. Of course, the option closer to the money is going to behave more like actual stock, and the theta bleed will be a bit slower. I'll need a big move to compensate the theta decay. As it turns out, I havent been getting many big moves. As the market churns sideways, I haven't revived a big enough pop on the OSB signals I've taken to counter the affect of theta decay on a OTM option. #traderproblems #thetahater
I recently closed my position in $TMO that I took on an Oversold Buy Signal back on August 4th. Per our rules for the forward test, we hold for 30 days, or until the stock touches the outer volatility band. So, the 30 day timer went off, and all I heard was Wha Wha Whaaaa. TMO ended up being a big loser for me, a little over 71% loser! ouch. Had this been live trading, I would have defended or exited the position sooner but, rules are rules... so I stuck to them. While that's a pretty significant loss, our back-test suggested that we should get a handful of winners that will eventually bring us a positive P/L.
Here's a look at my Oversold Buys so far in our forward test: