Hey you Guys!!

Well, another successful week of trading.  Despite my remorse at Michigan getting bounced in the opening round (I refuse to call the play in games the first round despite what the NCAA says!) it was a good weekend.  UK is in the sweet 16 as well as Ohio – so at least Michigan didn’t get bounced by a flash in the pan.  The BIG 10 did really well getting Indiana, Wisconsin, MSU and Ohio St into the Sweet 16.  ¼ of the Sweet 16 is the Big 10 – who says it is not a power conference in basketball!!!

Now let’s go analyze this week’s trade to see how we put the odds in our favor.  As is now the tradition, I use the initial analysis and augment with new comments in red.

TRADE FOR WEEK ENDING March 16, 2012:

RUT

RUT     810     Put     $1.06

RUT     800     Put     ($.52)               This gives a $0.54 Net Credit for a 5.4% ROI

ANALYSIS

1.       The RUT is starting to show some volatility, but as you can see the price is testing the 20 Day SMA then bouncing higher.  So if we are testing and moving higher on the chart we do Put Credit Spreads per our rule.  The Price continued to bounce off the 20 SMA line the rest of the week as the price and SMA both moved higher.

2.       The 810 price level for the put option to sell is 10 points below the 20 day SMA.  Since the price has pushed back above the SMA line it has not fallen, but tested it then went higher. This gives some degree of certainty that our 810 sell is safe.  As price moved higher this increased our safety in the Put side.  Our basic rule is “Go the opposite of the price direction for the spread trade”.

3.       The 800 price level is even further below the SMA line just adding to our degrees of safety.

4.       My probability calculator put the odds at 88.68% of RUT ending up above the 810 put.  Generally a probability calculator number of 85% or greater is my baseline for a trade.  I also used a tool in Trademonster’s arsenal of a probability of breaking even.  This came in at 94%  so I took that as a good sign that I could at least make some money with this trade.

5.       The trend line this week since the move above the SMA has been for higher highs and higher lows.  This is a classic technical sign that the price will be going higher.  This confirms our choice for the put spread.  This is what happened, and as of Noon Monday is continuing to happen.

6.       I did briefly think of trying a condor setup, but when looking at the chart I saw that the chart was not telling me to use a condor.  Condors are for channeling price charts.  We are on a definite upswing this week, and a condor strategy would be very dangerous.  A condor would have been very dangerous last week.  I did not end up doing on and glad I didn’t.  The condor strategy really only works well if you are in a sideways market, and we are definitely not in one of those.

7.       Also I did look at the SPX and NDX, but there really was not a trade I could see with the same ROI that the one I put on has.    There were trades to be made here, but I like to get the best bang for my buck, and that was not here.  But if your risk tolerance is not as high as mine both these index options had profitable trades.

8.       Summation:

a.       We are in an uptrending market this week according the RUT chart.  Higher highs AND higher lows are a definite signal that the price will be going up.

b.      The probability calculator gave a favorable percent of this trade ending up in my favor, at 88.68%.  Anything over 80% is a very high probability trade, and that is what we shoot for here. A trade with a high probability of success. 

c.       I was able to get good ROIs at 1.0 Std Dev away from the strike price.

d.      All the assumptions proved correct.  We used our skills of technical analysis and mathematical calculators to create a trade that we could back up with facts.  That is the way to high probability of success. 

 

Ok, I haven’t thanked Freestockcharts.com for a while so I should do that.  All of the charts you see in this blog are from freestockcharts.com.  They have great charts and some nifty tools to help your analysis.  I use the site tons.  It is a great resource.  Yeah, I don’t get any compensation for this, I am just saying this because I use them and am happy with what I get from them.

DISCLAIMER:  Hashley Capital Management, LLC; as well as myself are not giving any trading advice.  All data is historical in nature and is intended for use as an educational tool.  Trading in options is risky and can result in loss of capital.  There is no attempt to sell any brokerage services or act as a broker or dealer by Hashley Capital Management, LLC.  Any forward looking comments on this blog are not attempts to solicit business for Hashley Capital Management, LLC.  If you choose to follow the same path and invest in the strategies and trades used by Hashley Capital Management, LLC after doing your own due diligence than that is your decision and yours alone. 

Reach me @:

Email:  hashleycm@yahoo.com

Twitter: @awagel01

Or leave a comment on the blog

TTFN

Ash