Simple Indicator YTD Review: OEX Put/Call Ratio Strategy
This is a multi-part series looking at how some of the simple indicators we’ve talked about in the past fared through this very interesting trading year.
In this post we look at the OEX PCR Strategy applied to the S&P 500 index. This is a longer-term strategy that takes contrarian positions against the OEX put/call ratio (read more here and here). It first requires calculating the ratio of the S&P 500 vs the OEX PCR. The trading rules then are: go long the S&P 500 at today’s close when the 21-day (1-month) EMA of that ratio crosses below the 42-day EMA today, and move to cash when it crosses above.
As previously mentioned, all tests are frictionless and account for a return on cash of half the nearest 13-week Treasury bill.
The strategy did more or less the opposite of the last two tested (here and here). It did a nice job of playing the 2Q bounce, but moved to cash as the market became overheated in the second half of the year.
Like the Generals Lead the Troops strategy, I like this one because it’s been successful picking entries/exits that are so much different than a traditional trend-following strategy, so it provides a bit of strategy diversification for traders of the longer-term variety.
In the following post, I’ll combine all three of these long-term strategies to see how smooth of an equity curve three very disparate strategies were able to produce.
[Edit: click to read the rest of the YTD Review]
Filed under: Trading Strategies | 2 Comments