Exchange-traded options and CRISMA trading
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Abstract
I n a recent article in this Journal, we illustrated the effectiveness of the CRISMA (Cumulative Volume, Relathe Strength, Moving Average) complex technical trading system [Pruitt and White, 19881. That article demonstrates that the arithmetic annualized risk-adjusted abnormal returns realized from stock trading using this system range from 6.13% to 35.65%, depending on the level of transaction costs and the return generating model used. We recognize that few market traders actually purchase equity securities according to trading strategies based upon strategies similar to the CRISMA system. Rather, they seek the higher leverage and profit potential represented by exchange-traded options. This article alerts traders to the possibilities of an active option trading strategy based upon the CRISMA trading system.