2011 Newsletter Performance Review

By Lawrence G. McMillan

This issue contains our annual analysis of the trades we’ve made in the past in The Option Strategist Newsletter.  2011 was a very good year for hedged positions, but a poor one for speculation.  We’ll delve into the various strategies, attempting to analyze (if possible) why each one performed the way it did.  Even though the year contained 242 recommendations, one year’s worth of results does not definitively argue for against any particular strategy.  Thus, the results for the last eleven years are shown, and we’ll do some analysis on the long-term ramifications of certain strategies as well.  Finally, we’ll look within some of the broad strategies, so see how specific approaches have performed (for example, how have VIX hedged trades done?)...

The Option Strategist Newsletter produced an overall average annualized return of +27.5% for 2011 and +17.2% for the last 20 years

Broad Summary

Hedged futures options trading and intermarket spreads led the way again this year, although hedged index spreads were nicely profitable as well.  This is really nothing new.  Those categories lead in more years than they don’t.  Speculative trading, meanwhile, was dismal. 

The volatility of returns from speculative trading as compared to hedged trading are evident from the table on page 2.  That’s why most traders only allocate a small portion of their capital to speculative trading.  If we use 2011 as an example, there were 152 hedged positions, and the average investment in them was $10,962.  Also in 2011, there were 90 speculative positions, and the average investment was $1,776.  Hence, using total dollars as the “measuring stick,” this is what we can conclude:

Hedged dollars: 152 x $10,185 = $1,548,120

Spec dollars: 90 x $1776 = $159,840

Thus speculative dollars, as a percentage of total dollars invested in 2011 was a relatively small 9.4%.

As a consequence, the hedged positions, whose average annual return was 57% for 2011 dominated the negative returns from speculation, to produce an overall average annualized return of 27.5%...

Read the entire 2011 Performance Review article (published on 1/13/12) and receive our latest trading recommendations by subscribing to The Option Strategist Newsletter.