I may provide more detail later, but the scan had the following criteria:
- 63 daily EMA is pointed down
- 63 daily EMA is below the 252 daily EMA
- 14,3,3 daily %K stochastics is greater than 75
- Daily MACD line is above the signal line
- Today's gap up is greater than 0.25%
Buying an ATM put option with 2 months until expiration and holding until expiration resulting in an average expected value of 59% gain including losers.
So a simple play here is to buy a November put option and hold until expiration. If a high quality bottom reversal signal comes prior to expiration, the trade could be exited as well. Such a signal will not likely come from my algorithms unless the August low is broken.
So the simple set-up here is that stocks could fall hard and cause a big move in the puts. But a loss would be expected to lose the whole option premium. So the Kelly Bet fraction was only in the 20-22% range. Out of 28 instances, there were 11 instances which ended up in a profit position.
Click to Enlarge
Pete
