Friday, January 8, 2016

Even More Bullish Call Option Set Up - 3 Consecutive Closes Below Lower Bollinger Band

Click on Stats to Enlarge

Going Back a little over 20 years in SPY, there have been 47 previous instances before today, of 3 consecutive closes below the lower daily bollinger band.  The statistics above show the option trade stats for buying an ATM call option with 1 week until expiration and setting a limit order to exit at 130% gain or exiting at expiration.  This limit order provided the optimal expected value.

This is a very simple scan but is a very powerful set up historically.  Over the next 5 trading days, the MAX gain has been twice as big as the MAX loss in SPY.  This skew provides a profitable equity play here as well on the long side.  Setting a loss limit of 12.5% and a profit limit order of 12.5% has led to an average gain of 2.34% in the past history if exiting at the close 5 days later if the limit orders were not hit.


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