Wednesday, September 14, 2016

New High Probability Call Option Trade on SPY 9-14-16

As of the close of Tuesday/yesterday's session, another high probability call option set has occurred.

I ran a scan with the following criteria:

  • SPY gaps down between 0 and -1.0%
  • SPY closes down more than 1%
  • The %K 14 period stochastic is below 30
  • 63 day MA is greater than 252 MA (bull market configuration)
So we have a gap down and lower close with the stochastics near oversold in moving average up trend.

There were 80 instances, the results in the table below.

The trade strategy would be to buy an ATM SPY option at the close of Tuesday or the equivalent price.  Then set a limit order of 50% gain to exit the trade.  Let it expire worthless if the limit is not hit.

Now the dilemma here based on my option analysis system is that we are at Wednesday, and the stats are for buying an option with 5 days until expiration.  But we don't have that ability.  We could either buy this Friday's expiration or next Friday's.  I would suggest getting more time rather than less because the stats are still strong for 10 days until expiration.  However, the skew is still very strong for the first 3 days in favor of upside gains.  So either way could be justified.


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