Using our NQ2 Model, we identified MSFT as a robust LONG CALL option play – SEPT at the Strike price of 44.00.  This is solely based on the data posted below.

The matrix below displays our current trade that was entered on a Limit Entry @0.95 on 8/15/14.

The strength signal is based on the Covered Return – shown below  under Derivatives.  What is important to note here is the Ask-Bid spread and the “C PROB” (Call Probability) that is a calibration of the Implied Volatility formulary set.

MSFT – IN PLAY
Liquidity Time Decay Trend
1.18% 0.27% BULL
DATE OPTION STRIKE
08/15/14 CALL 44
PREMIUM COST DAILY RTN
$0.95 $197.45 $110.55
P TGT GAIN P/L
$2.77 $545.82 $478.10
C RTN INVERSE C PROB
0.77 0.23 3.59%
P TGT PROFIT ASK-BID
$2.77 $348.37 0.02

The chart shows the “robust” trend that was identified by our model’s calibrated formula set.  The data box shows the trend to be at 96 Bars with +105.26% increase at an upward slope of 15.32 degrees.

msft call sept

Liquidity is key to both price momentum and the Bid/Ask spread.  Thus our model provides us with the most accurate Liquidity percentage validated by the “TREND” and “IV SIGNAL”.

LIQUIDITY TREND IV SIGNAL
1.20% HIGH BULL CALL

What we’re looking at here is primarily the Covered Return Ratio to the Inverse.  Currently at .77, this means a Long Call will remain robust.  If the Inverse would start to shift upwards, that would be a signal that the premium is going to start to fade, out of our favor.  Thus, we’d close the position.

Since we know that derivative positions can go against us very quickly, this signal is vitally important in keeping an eye on our profitability.

The Option Call/Put price data is real time – and not reflective of our trade, which is posted at the beginning of this blog.

DERIVATIVES
COVERED RTN 0.77 Inverse 0.23 Monetized 1.54
OPTION CHAIN – SEPT 
OPT Limit Premium Target Price Entry Gain Capital Gain PROFIT
CALL $1.27 $2.77* $67.72 $545.85 $478.13
PUT $0.63 $0.72 -$0.36 $136.24 $136.60

We closed our position at 1.54; +0.58 profit, having held this open for 4 days.

*The TARGET PRICE is hypothetical.  It provides us what we call the LIMIT ORDER – or highest price possible for this particular option premium.  Other factors come into play, especially Time Decay.   You will note that we provide the Time Decay in our analysis – the lower the number the more robust the trade will be.

(DISCLAIMER: THIS IS STRICTLY FOR EDUCATIONAL PURPOSES. WE MAKE NO RECOMMENDATIONS FOR TRADING THESE POSTED EQUITIES NOR ARE PROMOTING ANY BROKERAGES OR FINANCIAL SERVICES. THUS THIS NOTICE RELIEVES US FROM ANY LIABILITY ON THE PART OF THE READER’S DECISIONS TO TRADE AND OR INVEST IN THE POSTED EQUITIES.)

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s