Monday, September 12, 2016

Implications are Strong For a Gap Fill This Morning If Price Gaps Down

Futures in the SP500 have been lower since last night, and so I ran some back tests this morning looking at times when a 2% down day was followed by a gap down.

I looked at it with different filtering, but the results were consistent.  One of the ways I looked at it is to test and see if price gapped down less than 1%, would the gap be likely to fill?  Looking back at the history of the SPY etf there were 58 instances where the 2% down day was followed by a gap down in the range of 1% or less.  Out of those there were only 5 which did not completely fill the gap and trade back above the previous day's close.

When I filtered the results to look only at instances with a rising yearly average, the results showed 21 instances, all of which completely filled the gap down.  Also in these instances, the average close 5 days ahead (this Friday in this case) was 1.24% higher from the open (of today/ day 1).

Given the studies I looked at yesterday being so consistent, and a fair possibility (~50%) of a MAX intraday gain of 1% or more from today's open, I am going to purchase the SPY 213 call option expiring this Friday, with a limit order of 1.20.  It would take a move down to roughly the 212 level on SPY to fill the order.  Then I will set a limit order of 100% gain for exit of the trade.


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