Wednesday, May 11, 2016

Stats for A Call Option Set Up From Last Week

Last week as prices reached the lower bollinger band on the daily time frame, the previous bearish set-up and trade recommendation was exited at its target profit.

There was a reasonable bullish looking set up at that point, though I did not run any scans looking for the bullish edge.  One notable feature was a modestly elevated total put/call ratio at the end of last week.

In retrospect I ran some scans and found a profitable set-up which occurred on 5-5-16, last Thursday.
Scan criteria were as follows:

  • 5 day average of total put/call ratio was 1.1 or greater
  • SPY closed down 3 days in a row (or more)
  • %K of the daily stochastics (14,3,3) was less than or equal to 20
So this scan indicates a period of at least short term elevated fear as evidenced by the put/call ratio being high.  Also, the stochastics is "oversold".

Results for the options are listed in the table below.

Click on Stats to Enlarge

For a 1 week until expiration at-the-money call option purchase, setting a limit order to exit the trade at 100% profit or letting the option expire worthless yielded the best profit scenario.  In this case it was basically a 60% chance for the option to double.  

I am posting this here for future reference and addition to my database of profitable trade set-ups.
The equity side of the trade did show a profit opportunity but not one that I felt was exceptional to post.

So understand that this trade is not a current recommendation.  The trade was already triggered and actually hit its 100% profit target yesterday, and would be closed already.


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