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  1. Alan Bond
    November 5, 2019 @ 10:21 am

    A couple of questions:

    1) Does the CAGR and Total P/L of T stock include dividends?

    2) Does the CAGR and Total P/L of the cash secured put strategies include interest that is earned on the cash that is serving as collateral for the puts?


      November 5, 2019 @ 2:43 pm

      1) Yes. CAGR and all other stats, on T as well as all the other studies, are based on total return / dividends reinvested where applicable.

      2) The methodology of the cash-secured strategies ensures every penny of the portfolio is allocated at all times. There is no spare cash available to accrue interest.


  2. Alan Bond
    November 5, 2019 @ 4:02 pm

    Perhaps the strategy should not be called “cash secured short put”. A cash secured put requires cash to be set aside to buy T stock should the put be assigned. At some brokerages like Fidelity, the cash collateral can be put in a money market fund to earn around the 3 month t bill rate. This interest can be a significant contribution to CAGR and P/L especially for the low delta strategies.

    The strategy you are describing, instead seems like selling puts with a 0% margin requirement.


      November 5, 2019 @ 6:23 pm

      Cash secured, meaning non-leveraged.

      You have a valid point. This is why P/L is calculated using average daily returns as opposed to using a static amount of capital that can have residual cash (or idle premium) accruing interest. The strategy results reflect a scenario where all capital is allocated at all times. Said another way, the results depicted are what an ETF would yield if the respective strategy was running behind the scenes with perfect capital allocation tactics.

      This methodology of using average daily P/L ensures the following issues are avoided:
      -option strategy underperformance causes the backtest to fail due to hitting capital ceilings (i.e. unable to open a new position daily)
      -option strategy outperformance causes the returns to drag due to failure to allocate the additional capital (i.e. capital exists to open more than one position on a given day but instead sits unused accruing interest at the risk-free rate).


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