ALPHA:

b= group_rank(-close/bookvalue_ps*(1+rank(pcr_vol_120)),densify(pv13_reveremap));

trade_when(rank(vec_avg(nws12_mainz_sl))<0.6,b,-1)

Book value per share:

Book value per share (BVPS) takes the ratio of a firm's common equity divided by its number of shares outstanding.

Put-Call Ratio (PCR) Components PCR Based on Volume (pcr_vol_120):

Definition: The ratio of the trading volume of put options to call options over the past 120 days. Indicator: High PCR can indicate bearish sentiment, while low PCR can indicate bullish sentiment. Responsiveness: More responsive to short-term changes in market sentiment because trading volumes can fluctuate significantly on a daily basis. PCR Based on Open Interest (pcr_open_interest_120):

Definition: The ratio of the open interest (total number of outstanding contracts) of put options to call options over the past 120 days. Indicator: Also reflects market sentiment but is less sensitive to daily fluctuations because open interest changes more slowly. Lagging Indicator: Tends to be more of a lagging indicator as it represents longer-term commitments by market participants. Performance Differences Sensitivity to Market Sentiment:

Volume PCR (pcr_vol_120): Immediate Reaction: More sensitive to immediate changes in market sentiment, providing quicker signals. Short-Term Fluctuations: Captures short-term investor behavior and sentiment, which can be more volatile and provide timely trading signals. Open Interest PCR (pcr_open_interest_120): Delayed Reaction: Changes more slowly as it reflects longer-term positions. Stable Indicator: Less responsive to short-term sentiment changes, potentially missing quick market movements. Relevance to Trading Strategy:

Volume PCR: Timely Information: Aligns better with short-term trading strategies that rely on quick adjustments to market sentiment. Signal Strength: Provides stronger and more immediate signals, enhancing the alpha's responsiveness. Open Interest PCR: Lagging Information: Better suited for longer-term strategies where stable, less frequent signals are preferred. Signal Delay: The lag in signal strength may lead to missed opportunities in a fast-moving market. Market Conditions:

Volume PCR: Volatile Markets: Performs better in volatile or rapidly changing market conditions where sentiment shifts quickly. Open Interest PCR: Stable Markets: May perform better in stable, trend-following markets where longer-term positions are more relevant. Summary The pcr_vol_120 likely performs better than pcr_open_interest_120 in this alpha strategy because it is more sensitive to short-term changes in market sentiment, providing timely and actionable signals. The pcr_open_interest_120 is a lagging indicator and less responsive to immediate market shifts, which can result in slower and less effective trading signals in a strategy that relies on quick reactions to market sentiment changes.

Book value of equity per share effectively indicates a firm's net asset value (total assets - total liabilities) on a per-share basis.

When a stock is undervalued, it will have a higher book value per share in relation to its current stock price in the market.

BVPS is used mainly by stock investors to evaluate a company's stock price.

https://www.investopedia.com/terms/b/bvps.asp#:~:text=Book%20value%20per%20share%20(BVPS)%20takes%20the%20ratio%20of%20a,on%20a%20per%2Dshare%20basis.

Close:

Price at the end of day

Agar close price> bookvalue per share se iska mtlb h log jyada paise dena chah rhe hai uski worth se toh stock overvalued hai.

So we should go long on undervalued stocks

That’s where the initial idea comes from to rank the stock on basis of ( -close/book value per share ), i.e. we should go long on undervalued stocks

Pcr_vol_120

Ratio of put volume to call volume on a stock's options with expiration 120 days in the future.

Modification:

Now jiska -close/bookvalue_ps jitna negative hoga mtlb stock utna jyada overvalued h, so now we are modifying the signal by adding another signal i.e. rank(pcr_vol_120)

If put call ratio of a stock is more it means put volume is more than thye call volume which means people are selling more than buying the stock, which means that stock is not doing great that’s why people are selling it more so multiplying it with the rank of 1+pcr_vol_120 we will make what is negative more negative

Densify:

densify(x)

This operator converts a grouping field of many buckets into lesser number of only available buckets so as to make working with grouping fields computationally efficient. The below example will make the implementation more clear.

We densified the alpha with a custom group(pv13_reveremap) taki correlation na aaye

pv13_reveremap: relationship data for equity k andar aata hai

nws_12_mainz_sl:

Whether a long or short position would have been more advantageous:If (EODHigh - Last) > (Last - EODLow) Then LS = 1;If (EODHigh - Last) = (Last - EODLow) Then LS= 0;If (EODHigh - Last) < (Last - EODLow) Then LS = -1.

Decay=23 because there are around 20-23 days in a month

If a company’s BVPS is higher than its market value per share—its current stock price—then the stock is considered undervalued. If the firm's BVPS increases, the stock should be perceived as more valuable, and the stock price should increase. An exception to this valuation is in bank stocks which tend to trade below their BVPS due to their increased risk from trading activities.

BVPS is the sum that shareholders would receive in the event that the firm was liquidated, all of the tangible assets were sold and all of the liabilities were paid. However, as the assets would be sold at market prices, and book value uses the historical costs of assets, market value is considered a better floor price than book value for a company.

When evaluating a company's financial health and calculating metrics such as the book value of equity available to common shareholders, it's essential to distinguish between different types of equity. Here's a breakdown of the statement:

Shareholders' Equity: This represents the owners' claim after all liabilities have been settled. It's the residual interest in the assets of the entity after deducting liabilities. It includes common stock, preferred stock, retained earnings, and additional paid-in capital.

Preferred Stockholders: Preferred stockholders have a higher claim on assets and earnings compared to common shareholders. This means that in the event of liquidation or bankruptcy, preferred stockholders are paid before common shareholders. They typically receive fixed dividends and do not have voting rights, unlike common shareholders.

Common Shareholders: Common shareholders are the owners of the company who have voting rights and potentially unlimited upside if the company performs well. However, they are last in line to claim the company's assets and earnings.

Equity Available to Common Shareholders: This is the portion of shareholders' equity that is attributable to common shareholders after accounting for the claims of preferred stockholders.

Why Subtract Preferred Stock from Shareholders' Equity? Higher Claim Priority: Since preferred stockholders have a higher priority claim on the company's assets and earnings, their equity needs to be separated from that available to common shareholders. Accurate Valuation: For common shareholders, it's crucial to understand the value of the equity that is truly available to them. By subtracting the preferred stock from the total shareholders' equity, you derive the equity portion that is available to common shareholders, providing a more accurate picture of their stake.

Current and Long-Term Assets

Total assets include current and noncurrent assets. Current assets include cash and anything that can be converted to cash within a year, such as accounts receivable and inventory.

Aside from stock (common, preferred, and treasury) components, the SE statement includes retained earnings, unrealized gains and losses, and contributed (additional paid-up) capital.

The retained earnings portion reflects the percentage of net earnings that were not paid to shareholders as dividends and should not be confused with cash or other liquid assets. Long-term assets are possessions that cannot reliably be converted to cash or consumed within a year. They include investments; property, plant, and equipment (PPE), and intangibles such as patents.

Current and Long-Term Liabilities

Total liabilities consist of current and long-term liabilities.

Current liabilities are debts typically due for repayment within one year. This includes accounts payable (AP) and any outstanding taxes.

Long-term liabilities are obligations that are due for repayment over periods longer than one year. Companies may have bonds payable, leases, and pension obligations under this category.

The number of shares issued and outstanding is a more relevant measure than shareholder equity for certain purposes, such as dividends and earnings per share (EPS). This measure excludes Treasury shares, which are stock shares owned by the company itself.

Take the equity at the onset of the accounting period, add or subtract any equity infusions (such as adding cash from shares issued or subtracting cash used for treasury purchases), add net income, subtract all cash dividends paid out and any net losses, and what you have left is the shareholder equity for that period.

BVPS = (Total Equity − Preferred Equity)/Total Shares Outstanding

Equity Market Value vs. Book Value Due to accounting procedures, the market value of equity is typically higher than a security's book value, resulting in a P/B ratio above 1.0. During times of low earnings, a company's P/B ratio can dive below a value of 1.0.

For example, in most cases, companies must expense research and development costs, reducing book value because this includes the expenses on the balance sheet. However, these R&D outlays can create unique production processes for a company or result in new patents that can bring royalty revenues.

While accounting principles favor a conservative approach in capitalizing costs, market participants may raise the stock price because of such R&D efforts, resulting in wide differences between the market and book values of equity.

Another way to increase BVPS is to repurchase common stock from shareholders and many companies use earnings to buy back shares.? ChatGPT Yes, repurchasing common stock can increase the Book Value Per Share (BVPS) and is a common practice among companies. Let's break down how and why this works:

Book Value Per Share (BVPS) BVPS is calculated as follows: BVPS

Total Shareholders’ Equity − Preferred Equity Number of Outstanding Common Shares BVPS= Number of Outstanding Common Shares Total Shareholders’ Equity−Preferred Equity ​

How Share Repurchases Increase BVPS When a company repurchases its common stock, it reduces the number of outstanding shares. Here's the effect this has on BVPS:

Reduction in Outstanding Shares: By buying back shares, the total number of outstanding shares decreases. Impact on Shareholders' Equity: The repurchase is typically done using the company's retained earnings or cash reserves, which reduces the total shareholders' equity. However, this reduction is often less significant compared to the decrease in the number of shares.

Some investors believe that the P/B ratio is a forward-looking metric that reflects a company's future cash flows.

However, when you look at the information used to calculate the P/B ratio, the factors used are the price investors are willing to pay currently, the number of shares issued by a company, and values from a balance sheet that reflect data from the past. Thus, the ratio isn't forward-looking and doesn't predict or indicate future cash flows.

The P/B ratio also provides a valuable reality check for investors seeking growth at a reasonable price. It is often evaluated with return on equity (ROE), a reliable growth indicator. Large discrepancies between the P/B ratio and ROE often raise a red flag for investors.

Overvalued growth stocks frequently show a combination of low ROE and high P/B ratios. Properly valued stocks have ROE and P/B ratios that grow somewhat similarly because stocks that generate higher returns tend to attract investors and increase demand, thus increasing the stock's market price. ​ Price-to-Book (P/B) Ratio? Many investors use the price-to-book ratio (P/B ratio) to compare a firm's market capitalization to its book value and locate undervalued companies. This ratio is calculated by dividing the company's current stock price per share by its book value per share (BVPS).

As with most ratios, the P/B ratio varies by industry. A company should be compared with similarly structured companies in similar industries; otherwise, the comparison results could be misleading.

The price-to-book ratio may not be as useful when evaluating the stock of a company with fewer tangible assets on its balance sheets, such as services firms and software development companies.

Why Use PCR Volume Over 120 Days? The choice of using the Put-Call Ratio (PCR) based on volume over a 120-day period in the alpha signal can be attributed to several reasons that enhance the robustness and reliability of the trading strategy. Let's explore these reasons in detail:

1. Balancing Sensitivity and Stability Sensitivity to Market Sentiment:

Short-Term Trends: A 120-day period captures medium-term market sentiment, reflecting more stable trends compared to shorter periods (e.g., 30 days) which may be too sensitive to temporary market fluctuations. Smoothness: It helps to smooth out short-term noise and anomalies that might affect shorter periods. Stability of the Signal:

Long-Term Trends: While still responsive, a 120-day period is long enough to capture underlying market trends without being overly reactive to daily volatility. Reduced Noise: It reduces the impact of short-term spikes and provides a more stable measure of sentiment. 2. Relevance of Option Trading Volume Option Volume as a Sentiment Indicator:

Immediate Sentiment: Trading volume in options markets is a direct indicator of trader sentiment. High put volume may indicate bearish sentiment, while high call volume may indicate bullish sentiment. Liquidity Insights: Trading volumes provide insights into market liquidity and investor activity levels. Comprehensive Data Over 120 Days:

Behavior Patterns: Analyzing volume over a longer period like 120 days captures investor behavior and sentiment over various market conditions, including earnings seasons, economic announcements, and geopolitical events. 3. Avoiding Overreaction Mitigating Short-Term Volatility:

Day-to-Day Fluctuations: Using a shorter window might lead to overreactions to short-term events, leading to potentially less reliable trading signals. Event Impact: A 120-day window mitigates the impact of single-day events, ensuring the signal reflects more consistent sentiment trends. Reducing Noise:

Less Reactive to Outliers: A longer period smoothens outlier data points that might skew results in shorter timeframes, leading to more reliable alpha generation. 4. Historical Performance and Empirical Evidence Empirical Support: Backtesting Results: Historical backtesting often shows that a 120-day period for PCR volume strikes a good balance between capturing relevant sentiment and avoiding excessive noise. Market Adaptation: Strategies developed through empirical research often find that medium-term periods (e.g., 120 days) provide optimal performance metrics in terms of risk-adjusted returns. 5. Strategic Alignment Trading Strategy Fit: Medium-Term Strategies: A 120-day PCR volume fits well with medium-term trading strategies that aim to capitalize on sentiment trends over several months. Alpha Stability: It ensures that the alpha signal remains stable and reliable, aligning with the strategic goals of reducing turnover and enhancing predictability. Summary Using PCR volume over a 120-day period provides a balanced approach that captures medium-term sentiment trends while reducing the impact of short-term noise and volatility. This period is long enough to smooth out day-to-day fluctuations and provide a stable and reliable sentiment indicator, aligning well with medium-term trading strategies that rely on consistent and robust alpha signals. The choice of this period is supported by empirical evidence and historical performance, making it an effective component of the trading strategy.