2012 Stock Market Performance Vs. Option Alpha Performance
Kirk Du Plessis | Jan 14, 2013 12:54AM ET
When I look back at 2012 I can’t help but think it was a huge year of market uncertainty. From elections and Europe to our own economy struggles here at home. But despite the headwinds the markets were resilient and pushed equities higher by nearly 16% at year end. How much of this was QE3 we will never know but I do think there is some “inflationary returns” baked in here. . .
Including dividends, the S&P 500 total return index (which is what we track against) returned 16% for 2012. Buy and hold this time sure did help investors recover losses from previous years.
How Did Option Alpha Perform?
Very well.
I wouldn’t say we broke any record books this year since we spent so much time in cash, but we did turn a nice profit and our Credit Spreads portfolio out-performed the index by almost 2%.
Iron Condor trading this year was another bust. Low volatility and tight markets were not attractive for this strategy. Naked options trading under-performed on a return basis but I am very happy that we only traded 6 months out of the year and made nearly 8%. Had we traded every month we could have been right on par or beat the indexes.
No Monthly Draw-downs!
Probably the biggest “success” this year was the fact that we didn’t have any losing months. Rather than force trades each month for the sake of trading I choose to stay on the sidelines when it wasn’t favorable for my style of trading.
Holding cash a lot wasn’t the most exciting way to trade but it is a defensive position that allowed us to make the right trades at the right time. Given the huge swings in the indexes this year I would much rather have small profits here and there as opposed to home runs and strike outs.
As I’ve already detailed in my first post this year, I plan to change my trading style this year to fit a more probability based approach. My strategies have worked consistently since 2007 and it’s clearly a profitable way to trade options – but there is always room for improvement!
What Are You Changing Next Year?
Add you comments below and let me know how you all did personally in 2012. Then let me know what you plan to change going into 2013 for your options trading.
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