AAPL: Alpha, Algos And A Poorman

Apple Influenced By Options

For the scope of this article I will bring up only 1 aspect of options trading – buying calls. Apple is always the #1 leader in single stock option volume. Therefore, if any stock was influenced by options, it would be Apple. When you buy a weekly call that expires in 5 days, more than likely another retail investor did not sell it to you. The person or firm that sold you this call may have done so because they were legally obligated to. Since they never wanted the risk in the first place, they will offset the sale of a call with the purchase of Apple shares. This is what you would call delta neutral. Apple always trades more calls than puts in any type of market. If you have an equal number of buyers and sellers for Apple stock, i.e. 500K sell and 500K buy orders, the stock would not move. Let me now bring in the options side. Since Apple always trades more calls than puts, the stock will have to rise as buying bias comes in. Remember from earlier, when you buy a call, the seller will buy stock to offset it. This is what brings in the buying pressure. The opposite also has to take place later in the week as you will eventually sell this call. When you sell your call, the buyer of it will sell shares of Apple causing sell bias as long as the stock side is in equilibrium, i.e. 500K sell and 500K buy orders. In conclusion; people buy weekly calls in the beginning of the week and sell them at the end of the week.


The Poorman’s Algo

Now that we have discovered a tradable pattern, let’s exploit it. The instructions are simple; you want to „buy on close” every Friday (or Thursday if Friday closed). You can enter various types of buy on close orders. The goal is to buy the closing print or as close to it as possible. The exit for this trade is a „sell on close” order every Tuesday. This is the first half of the algo or the long only side. A benefit of the long only is less holding risk. It’s taking on 4 days of risk vs. 7 if you were to buy and hold all year. This means we are removing 156 days of risk per year. We already know the performance was much better than holding the stock all year in 2011, as it gained $168.52 vs. the stock’s $79.36. Half the holding risk yet doubles the gain. 

[…] The second half of the algo is to exploit the fall from options closing and related reasons. The performance in 2011 was an additional $48.36 gain. The instructions are simple; you want to „sell on close” every Wednesday. The exit for this trade is „buy on close” every Friday (or Thursday if Friday closed). 

via Apple Inc. (AAPL): An Apple Story: Alpha, Algos And A Poorman – Seeking Alpha.

Formidabil algoritmul, iar rezultatele au fost excelente in cei 3 ani care au trecut de cand Travis Lewis il exploateaza. De ce ne spune si noua de el?

The options market is just one of the many reasons Apple is undervalued. It is my goal to expose all the trends I know and see in hopes of them going away. My true goal is for Apple to trade at fair value and unabated. If these artificial waves are going to stay in Apple, I want everyone to make money off of them. They will either become so big that the whole world will start riding them, or they will go away. But, until then, surf’s up dude.

La sfarsitul lui 2012, Travis a publicat acest update. Iar link-ul din care am ajuns aici, si care da rezultatul pe anul fiscal 2013 al Apple, este aici.


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