• Erik Billerikay

YOLO SPY call options with a statistical edge

#option #backtesting #IBS #YOLO


Praised by r/wallstreebets, the ultimate strategy of YOLO (You only live once) your net worth into buying SPY call options is one of the quickest ways amateur traders can become an overnight millionaire. In this article, we, Billerikay, instead of judging how stupid it is to YOLO your entire net worth (it is not), we try to investigate if there is any way to YOLO smart by using some known statistics advantages.

 

The YOLO Strategy

#backtesting

The gambling instrument we will use today is, of course, SPY call options just like any other wallstreebets traders. We will be combining our knowledge of the equity market's mean-reverting property to create ourselves a slightly better advantage for YOLOing our money.


In case you have not read our IBS strategy, please check it out using the link below.

https://www.billerikay.com/post/daily-ibs-effect-in-major-indices-how-to-use-the-ibs-indicator


Our previous article uses IBS < 0.25 as our entry signal and IBS > 0.75 as our exit signal. The YOLO strategy will be similar, but we improved the exit with a trailing stop.


The strategy is as follow.

  1. if IBS < 0.2 buy ATM SPY call option with 90 DTE at close.

  2. Exit Condition 1 : if IBS > 0.8

  3. Exit Condition 2: If the call option's value decreases more than 10% from its highest value. ( trailing stop of 10%)

  4. if any of the Exit Conditions is true, Sell your option at the close.

Since this is a YOLO strategy, we invest 100% of capital in each position.


Here is the result.




Our insane strategy turns out to be pretty good in the long-term. The YOLO strategy once multiplied our initial capital by 350 times (35,000%) before the drawdown. Moreover, The Sharpe ratio and Calmar ratio in the YOLO strategy outperformed the general market. Since we are YOLOing our money, we should not care about the Max Drawdown and Annual Volatility. ;)



Assumptions

A chain is only as strong as its weakest link. Before we go live with any quantified strategies, we need to understand our tests' assumptions and limitations.

  1. Options are bought/sold immediately at the midpoint price.

  2. Mean-reverting property of the market will persist.


Conclusion

The YOLO strategy seems to be performing well in our backtest. However, Billerikay does not suggest anyone try YOLOing and waste their money. It might be ok if you are allocating a small portion of your capital in the YOLO strategy. Diversification is always the key to long-term investing. Let us know your thoughts and happy trading!


Thanks for reading until the end. It would be our greatest honour if you can subscribe to our Youtube channel, become our site member or leave a comment below. It only takes you 2 mins and it will not cost you any money, but it is the greatest motivator for us to keep producing quality content to boost your trading success and continue doing what we love so much. Have a wonderful day!!


Bonus

The most effective indicator in the equity market that you MUST learn.

https://www.billerikay.com/post/daily-ibs-effect-in-major-indices-how-to-use-the-ibs-indicator


Learn how to trade with MACD indicator.

https://www.billerikay.com/post/copy-of-strategy-review-how-to-use-the-macd-indicator



Disclaimers

We are not financial advisors. Please do your own due diligence and investment research or consult a financial professional. All articles are our opinion – they are not suggestions to buy or sell any securities.

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