Tuesday, September 15, 2015

Time For a Grand Slam Swing - SPY Puts 9-15-15

I ran a scan today based upon current market action and found data suggesting an opportunity for a profitable play in index puts.  Data only goes back 20 years (to Sept 1995).

I may provide more detail later, but the scan had the following criteria:

  • 63 daily EMA is pointed down
  • 63 daily EMA is below the 252 daily EMA
  • 14,3,3 daily %K stochastics is greater than 75
  • Daily MACD line is above the signal line
  • Today's gap up is greater than 0.25%
Buying an ATM put option with 2 months until expiration and holding until expiration resulting in an average expected value of 59% gain including losers.

So a simple play here is to buy a November put option and hold until expiration.  If a high quality bottom reversal signal comes prior to expiration, the trade could be exited as well.  Such a signal will not likely come from my algorithms unless the August low is broken.

So the simple set-up here is that stocks could fall hard and cause a big move in the puts.  But a loss would be expected to lose the whole option premium.  So the Kelly Bet fraction was only in the 20-22% range.  Out of 28 instances, there were 11 instances which ended up in a profit position.

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1 comment:

  1. Slight mistake on the filter listed above. The scan should be for 252 EMA down and not 252 EMA less than 63 EMA. The instances are almost identical and the expected value of the 2 month ATM puts is only a couple percent different at about 54% including losers.