Wednesday, March 9, 2016

SPY Put Trade - 3-9-2016

Last night I ran a scan going back to late 1995 in SPY which matched some recent conditions in our market.  Scan criteria were as follows:

  • 5 day total put/call ratio in "sell" signal relative to 20 day bollinger bands
  • Daily MACD is UP
  • Daily MACD is above 0
  • SPY closes up for the day

The 1 month future returns in SPY shows about 3 times bigger max losses than max gains indicating a profitable set for short or inverse trades.

Also the stat on buying an ATM put with 1 month until expiration were outstanding.  The most profitable limit order to use was 80% from the closing price of the option on Monday.

The win rate was over 80% on the past instances.  Maybe somewhat surprisingly, the stats were not as strong when the long term moving average configuration was "down" like it is currently.  The stats were still profitable, but I would be less aggressive than the scan above suggested from the results.

So the trade here is to place a limit order to buy the April 15th expiration 199 SPY put at a limit of 4.35.  It may take a little rally back towards the highs in order to fill the order.


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