Wednesday, March 9, 2016

SPY Put/Short/Inverse Trade Stats Suggest an Outstanding Opportunity Here 3-9-16

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In follow up to the earlier post today, here are the stats for buying an at the money SPY put on signals corresponding to Monday's close.  So a limit purchase of Monday's close in the April 15th expiration SPY 199 strike put would have a greater than 80% probability of reaching a profit of 80% or greater prior to expiration based upon the data going back to 1995.  There are only 28 instances.  The Kelly Bet is super high at ~67%.  Since these types of scans will never include all possible data and all history, then I always suggest reducing the actual risk from the Kelly bet amount.  One must consider draw down as well and adjust accordingly.

Click on Stats to Enlarge

The stats here show the outcome of shorting SPY at similar signals and then setting a stop loss of 4.5% and a limit gain of 4.5%.   If the limit orders aren't hit then the trade is exited in 1 month (21 trading days).  Notice again a very high win rate and a corresponding high Kelly Bet %.  In actuality, the MAX expected value would be to set an even wider limit gain and loss.  But from the results, I think this limit order makes sense for those who are using some type of leverage and don't want massive stop loss differentials from the entry price.

So the trade here would be to short SPY at ~200.00 and then set a stop at 209.00 and a limit exit at 191.00.  But exit at the close on April 8th if the orders are not filled.

Even just entering short at the current price and setting +/- 4.5% orders from here, should result in a similar risk and reward profile.  Manage the trade in the same fashion as stated above. 

The historical stats justify using maximum leverage in an equity account by 3x inverse ETFs or simply full margin (2x).

Comment here if there is any further assistance desired in managing trades regarding this information.


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