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Strategies & Market Trends : Buying SPLITs and other Strategies
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To: Terry Whitman who wrote (820)4/13/2006 5:33:39 PM
From: rolatzi  Read Replies (1) of 1163
 
I did my own analysis for the end-first of month trade and can verify the following. Five day holding period starting with the close of the third trading day before the end of the month is marginally better than four day period. This works for SPY, DJ30, COMP and OIH. For DJ30 the return is exactly the same for four and five days. For COMP and OIH the additional day improved the return by 10-20%. The data was again from 1990 to the present.

I am considering using options to increase the return for such trades. For this purpose I measured the volatility of the VIX from the start to the end of the trade. Interestingly, the VIX volatility increased. This suggests that the value of options on the indices might increase even if the index itself remains constant. At least we can expect that they won't decrease due to decreasing volatility of the market over that period.

I also tested how a down market of at least 1% the day before or the day of the opening trade changed the outcome. I tested a 6-day holding period for this additional condition and found that the return on the SPX increased from 0.60%, to 1.52% or 1.10% but the number of events decreased from 193 to 26 or 22 respectively.

In light of your finding on bull versus bear market, perhaps the end of month strategy is best used during those historically weak months of the year namely June through October. The rest of the year generally yielding the best returns can be traded on a buy and hold strategy.
Ciao,
Rolatzi
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