SPY long term investment strategy Analysis

The generic strategy is to sell next month call or put. The premium is on average 2.5%
The focus of the strategy is to do long term statistics analysis and risk management.
The strategy tops at 2.5% / month no matter how high the SPY goes up, however, it consumes all the downside.
So to minimize down months is the key.

Here is new findings
(1) Separate market into long term bull market and long term bear market.
(2) The seperation of Bull from Bear is based on the 50SMA and 15EMA cross on weekly chart.
(3) Results: Bear market, averaged loss is 4-5% / month. So the strategy actually lose 1.5-2.5% every month.
(4) Bull market, averaged loss is 0.8-0.9% / month, So the strategy actually returns 1.6-1.7% every month.

So the simple strategy adjusts as:
Bull market, the goal is to grow capital, around 20% annually and can be compounded.
Bear market, the goal is to preserve capital. Leave the market and get all the cash to bond market or bond based mutual fund.

Once the strategy is fully proved. Consider to leverage 2x to better the return.

The next focus is to scrutinize bull market big loss months, analyze the characteristics and figure out even better way than doing nothing in the losing month.



characteristics includes:
(1) how many consecutive down months a bull market can have?
(2) how low can a down month be?
(3) how volative can a down month be? ie. the opening/closing from high/low.

Potential strategy candidates:
(1) Stop Loss. When the shorted premium is 2.5% and stop loss on 5%. With the idea is bad months, it at most wipes out the previous months profit, given the previous month is a winning month. With the current month observations, Stop Loss is not a good strategy. Consider Stop loss as exit market signal and the last resort of anything else. So thinking of 7.5% on the premium as the circuit breaker. In this case, the strategy loses 5% for the month, effectively wipes 2 previous gains. This is still not very bad as in Bull market advancing 2 months will moving backward 1 month.

(2) Average down. Sell more when it's down 5%, 7.5% and 10%. These numbers doesn't usually hold on bull market.