@frommi Yes, I guess the returns to some extent depends on the low evaluation of the option. When combining 10 month and 22 month it seems that you don't get much extra return. Maybe a few percent and a little bit more smooth return, but it's nog significant. Combining options with different underlying assets though could increase the return speed significantly(about 40% faster compounding of your portfolio if you combine OMX options with mining options), especially if the underlying assets are uncorrelated. This also give a more smooth return. When I was running the test with crappy expensive warrants, I was still able to get 50-100% return annualy on average, so the strategy should still work pretty well in "expensive" periods.
I haven't tried the S&P500. I think the S&P is highly correlated with OMX, but I'm not sure if there are S&P options on the market that are as cheap as the OMX options. The data i used was 1986-2018.
Last edited by Bostrom on Fri Feb 23, 2018 11:23 am, edited 2 times in total.
It's difficult to find historical option prices. I assumed the same ratios between spot, strike and option price so the options have probably been a little bit more expensive before.
Would strongly recommend using Black Scholes prices (which is close to what market makers would be quoting to you) which you can easily calculate with what you have.
Note it says non-dividend paying whereas the index may or may not be dividend paying. You can "fix" this by changing the interest rate. For the volatility, you can either use a constant number or you can fit a curve to historical VIX data (which is calculated as weighed average of options close to ATM) which should be available. In reality OTM options will be more expensive because of the vol-smile. However, this approach will be far more accurate/realistic than what you currently have.
@Bostrom I tried to do it with the S&P500 and couldn`t replicate your results. Digging deeper into this i can imagine that is because normally VIX futures are in contango (>85% of the time) but are now in backwardation (or at least not in deep contango), so OTM options are cheaper than normally is the case. And from all i know about options i don`t think your strategy will work using OTM options, because it is a widely observed fact that realized volatility is lower than implied volatility in the option market, so under normal conditions selling OTM options is slightly more profitable than buying options.
The best results i got were using 12 months ATM options, but i think the results are mainly a factor of leverage. Nontheless when combined with options on gold and bonds i can imagine that you can lower the drawdowns and therefore create better risk adjusted returns, in fact this is probably just another implementation of a leveraged permanent portfolio, and there are no guarantees that it will work in the future. You can read more here about it here: https://www.gyroscopicinvesting.com/for ... f=10&t=603
