SPY Call Option Exited - 50% Gain

The limit order of 50% was reached today for the SPY call (201 or 202 strike with Dec 18th expiration) which triggered entry at the end of the day Friday or during the session Monday.

Also the gap down is filled from last Friday which is really the short term chart target.  So this trade is closed for another high probability short term option profit opportunity.


Pete

Bullish Option Opportunity From Friday's Action 12-14-15

I ran some scans over the weekend based on Friday's market action.  I found a few simple scans with very high winning percentages and short term profit opportunities with solid trade expected value.  Here is one of the scans (data only goes back to late 1995).

• Gap down more than 1%
• Close down more than 1.9%
• Close in bottom 1/5 of range
• Day's high to low range is less than 3%

Trade stats are solid with 107 instances and a win rate of 88%.  Limit order is set at 50% gain with a 1 week until expiration at the money call option.

That option was entered today with the standard expiration option for this week at a 201 call on SPY.

Pete

Update on a Few Recent Scans - Call Option Opportunities

I have run a couple scans over the last 4 weeks which I did not take time to post on here.  But I wanted to show a couple recent simple scans which identified short term option opportunities which worked beautifully.  Also there is scan I ran last night highlighting a short term call option opportunity.

The last post I made on 11-13-15 noted a bullish short term technical set up and suggested that stocks may see a short term rebound.  I ran a scan of past similar conditions as follows:

• 3 days in a row closed down
• today's close was down more than 1%

Trade Stats for Scan

Based on my option pricing model there was a 74% win rate in buying an ATM call option with 1 week until expiration and setting a limit order of 50% to exit the trade.  That limit order ended up being hit the net day on a big rebound in stocks.

I ran another scan on 12-3-15 after a big 2 day sell off.  The scan looked at past times with the following criteria:

• 2 days in a row closed down more than 1%
• 63 day EMA was pointed up (to filter for intermediate uptrend rather than during a more oversold market)

Trade Stats for Scan

The past results showed only 15 instances, but ~73% win rate when exiting with a limit order of 69% on an ATM call with 1 week until expiration.  That limit order was hit the next day again on a big 1 day rebound last week.

Currently we have a some what similar set up occurring, where SPY has closed down 3 days in a row.  The intensity has not been as dramatic, and yesterday was only a 0.78% loss.  But I ran a scan with the following conditions:

• close down 3 days in a row
• today closes day more than 0.75%
• Daily MACD is down
• Weekly MACD is up
• Daily MACD is above 0
• High-Low range is less than 2%

It is a more detailed scan but helps to weed out times when the market was more oversold and in a predominant downtrend, often associated with higher volatility conditions than currently would be expected.

Trade Stats for Scan

The data on all these scans only goes back to last 1995, but there are still plenty of instances to get a look at how markets behave in similar instances.  In this case there were 24 instances with ~79% win rate when setting a limit gain of 50% to exit the option (ATM with 1 week until expiration) relative to Wednesday's close in this case.

So the implication is that the market may rebound in the short term.  However I don't like the technical analysis set up as much here.  I would rather see some further oversold or bullish divergence develop on the hourly MACD. 

The chart pattern on the daily SPY chart is a contracting triangle, with price at the lower boundary.  So maybe stocks are set to rebound from here.  And a contracting triangle typically has a significant price break to follow.

It may not be fruitful to over analyze here, but hopefully these stats and the associated short term technical analysis will be helpful for trade decision here or over the coming few days.

Pete

Short Term Oversold Signals Abound - SPY Analysis 11-13-15

The outline I gave in the last post has followed pretty closely so far in subsequent market action.

Based upon the scan comparisons from the previous post, the current time frame would already have surpassed the final bear market rally highs from previous comparable markets in the cases of major sell offs following the stated scan conditions.  So the Nov 3rd high seems important in that regard.

Currently with stocks down several days in a row, the hourly VIX chart is set up in an extreme that has typically preceded significant rebounds in stocks at least for several days.

The hourly MACD chart of SPY shows no bullish divergence at this time, so it may be premature for even shorter term traders to buy at this time.

Remember from the scan comparisons that the 2 months following previous similar markets were very strong to the downside.  Only very brief rallies punctuated those declines.  At this juncture the good put option purchase opportunity already seems past compared to when I posted those scan conditions 2 weeks ago.  So from here, I am kind of neutral but would suggest that stocks could sell off significantly.  The obvious stop loss point on a short position would be above the Nov 3rd high in SPY.

Pete

Market Conditions Fit With Topping In a Bear Market Rally - 10-29-15

Today I ran a few scan and one simple one that stood out highlighted the time periods below.  They were basically during the last 1-2 weeks of rallies in the last couple bear markets.  The 2002 and 2003 instances were after the bear market low in Oct 2002, but the Nov 2002 high did lead to a major decline and retest of the bear market low.  Only the April 2003 instance failed to lead to a major decline in stocks.

Mid January 2001
Mid May 2001
Aug 1 2001
Mid Nov 2001
Mid Nov 2002
Mid April 2003
Mid May 2008

The scan conditions were:

• 63 day EMA< 252 day EMA (basically long term downtrend in force)
• 5/63 total put/call ratio less than or equal to 0.83 (recent put/call complacency relative to trend)
• VIX closes below 25 (this will exclude rallies that are in major fear/decline environments toward the middle of the bear markets)

Buying an ATM put with 2 months until expiration on this signal led to average return of nearly 200% gain at expiration.

So it is certainly possible that the dramatic sell off in August was a blip in a bull market, similar to the August 2011 sell off, the bull market is in a later stage now and it is possible this is the first major rally of a larger bear market.

A low-low-high time cycle comes in next week on Nov 3rd relative to the August and Sept bottoms on the recent decline.  

The daily upper bollinger band (20,2), is currently sitting at about 210 which is 0.5% above the current highs.  It may be ideal to see a brief sell off followed by poke to new highs and a touch of the upper bollinger band before the rally completes and a significant retracement or leg down starts.  I also feel that program trades are likely to sell or profit take on a touch of the upper bollinger band.

Pete

Complacency In the Markets As the FOMC Meeting Occurs

Click on Chart to Enlarge

There are a number of shorter term notable bearish divergences occurring over the last couple weeks as stocks have continued to advance.  Also, there are some intermediate term sentiment extremes showing up in the put/call option data.

Today the FOMC released minutes and as occurred at the Sept 17th meeting, the VIX is at a relative low, contacting the lower longer term bollinger band on the chart above.  This indicates complacency in the options market relative to the recent range.  This type of signal occurs frequently near inflection points, in this case possibly with a short to intermediate term top in stocks.

There are several other indications of loss of momentum in stocks here.  I will run some scans over the next couple days to look at possible profitable opportunities in the options and stocks.


Pete

SPY Looks Ready to Pullback This Week - 10-12-15

Click on Chart to Enlarge

As a follow up to last post here is the updated hourly chart of SPY showing the lower peaks in the money flow index and a cross of the MFI below its moving average.  This is a picture perfect indicator divergence to signal a top.  Now it seems that stocks are still not ready just yet to decline, so it may take at least another to poke to higher highs before selling comes in.

At this point I have run several scan over the last few sessions, and based on similar moving average and technical indicator set-ups in the past, there is a very negative expectation for the next couple months.  Buying a 2 month until expiration ATM put on SPY here has been a profitable play in similar set-ups over the last 20 years.

So again I like a short entry here with a stop 3-4% above the market based on some previous stats.

Check last post as a further indication of moving average signal to look for confirmation of a new downtrend possible.