Hey all you weekly options traders!
Well, sorry I am a little late in getting this out. My trade was stopped out at close yesterday as it didn’t fill and my trade for this week was filled right at the open today. But I have had meetings and such to take care of so I am getting to this just now while watching the NCAA March Madness –UK Wildcats!!! Ya gotta multi-task sometimes!
This week was a rough week. See saw action like middle of last year. Up 10 points then down 7 then up 5 then down 15. This is when technical analysis really shows itself useful.
Now let’s go and analyze this week’s trade to see how we put the odds in our favor.
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.
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.
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.
5. The trend line this week since the move above the SMA has been for higer highs and higher lows, this is shown in the graph by the white lines. This is a classic technical sign that the price will be going higher. This confirms our choice for the put spread.
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.
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.
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.
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
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