Wednesday, June 15, 2016

5 Days Down in a Row for SPY ETF 6-15-16

SPY closed down for the 5th day in a row today.  Yet the sell off has been mild.

I ran a scan looking back at time when

  • SPY closed down for the 5th day in a row (not more or less)
  • VIX high for the day was less than 30, indicating only moderate volatility
And the results had a notable bullish skew for the next 5 days.  The best option profit opportunity was to buy an ATM call option with 1 week until expiration and set a limit order of 140% gain or let it expire worthless.

So, there are 7 days until the expiration next Friday.  But most of the gains came in the first 5 days in past instances.  So the way my model is constructed I would guess that the 140% gain would be a little too high to be realistic, but possibly 80-100% would be more realistic.

In any case, this set-up add further confirmation to the idea that a short term bullish rebound will likely occur into this weekend or beyond.

The strongest skew in the future equity returns occurred in the first 3 days, where the MAX gain was about 1.85 times the MAX loss.  So there is a profit opportunity in an equal magnitude stop loss order and limit gain order.

If there are any specific questions on this let me know.


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