Overwhelmingly, there are too many opportunities to short options this morning and or go Long on Puts.  Today’s volatility presents an opportunity to show one of our favorite plays for those not qualified for option spreads, yet can trade Covered Calls and Longs.

As mentioned in my previous post with the VXX, we trade it make up on drawdowns, or to exploit for day trade scalps.  Here is the strategic formulary. Overall, you can use the fundamental parameters of this strategy on any asset that has high Standard Deviation ratios I will be posting an example later).   AAPL is a prime example, and you’re probably enjoying a huge profit if you just went Long on the JAN 15 Puts this morning.

VXX – SIX DEGREES OF PERCENTAGE PROFIT – JAN 5

 VXX6macd

This is a viable trading strategy that is Risk Averse for the Day Trader.

Using the TOS platform, I put in the the following parameters on the Trade tab for options: Bid, Ask, Implied Volatility, Net Change, Mark and Last X with Strikes set at “8”.  This gives me the best “reduced cost basis” limit order entry point; though in such a market as today, I’m flying by the seat of my pants with discretionary executions.  My computer has overheated, just trying to keep with my Black Box calculations because of the massive amount of trading today. 

VXX – OPTION SCALP ALGO

  • Expect a +4 to +5% move up – so you can use your Analysis Tab on TOS to see what the price target will be.  Once this is hit, I close out that position (Long Call, two legs up from the opening price.)
  • Target the highest Volume and Open Interest Strike Prices; correlative to the percentage move.
  • Use the Analysis Tab to determine the “price target” in relationship to the Premium’s earning potential
  • Watch the Last X price – relative to the Mark for the lowest, “best entry” point.
  • Execute
  • Pull back is about -1.5%.  On the chart I put the INTRADAY SUPPORT AT $32.80.  VXX retraced back to this point.
  • I moved up two more legs to the highest volume and open interest (provides greater volatility move on the premium; and entered a Long Call on the JAN 15 when there was a slight pull back in the Last X price that gave me a “reduced cost basis” entry – thus I was in “profit” when my limit order was executed.
  • I held this position for the final run up that is typically +1 to +2% or $33.57 and then closed.

However, the caveat, is that you don’t have access to our Option’s Black Box that provides a greater in-depth insight that exceeds Level II by a thousand miles in signal based trend to price formation.

This table snapshot below was posted at 12:30 (EST)

Ticker Current Offer % Change Net Change Price Action MoC NPAMC
VXX $33.56 33.56 5.10% 2.570 1.1300 0.13 11.0988
TLT $129.02 129.04 0.78% 1.700 0.5901 0.14 8.0903
AAPL $106.51 106.54 -1.67% -2.820 -1.2366 0.68 -2.3142

MoC – What is this?  The Measure of Certainty is a new formulary that is Lambda based on variance and co-variance price formation. The NPAMC is the ratio of the Net Change, Price Action and Measure of Certainty.  The higher the number the more robust it is in validation, comparable to the F-Test.   Notice that AAPL, which has made a dramatic drop today, has a NPAMC of -2.3142 and an MoC at .68.   Each trading instrument has a specific MoC numerical range, that can be translated into binary code for a signal based algorithm trading program.  The NPAMC is the “adaptive agent” in the algorithm.

With an hour and half left in the trading session, VXX is currently:

Ticker Current Offer % Change Net Change Price Action MoC NPAMC
VXX $33.31 33.36 4.38% 2.320 0.8800 0.09 15.8810

The MoC has decreased signaling a decrease in net share trading; the NPAMC shows us a “consolidation” of inventory.  If you were still in the VXX on a JAN 15 Long Call, you’d be kicking yourself for not getting out sooner.  (Having closed out VXX, one could have jumped the shark to AAPL entering on the JAN 15 Strike price of 107 for a +$1.70 premium move!)

Here’s the current chart of VXX that validates my Proof of Concept.  The support price at the 50% Fibonacci is being respected.  We’re sidelined until the “witching hour” when the market makers will start dumping inventory into the market that will cause a mean reversion price surge.  The current aggregate market performance is -1.84%, just below -2% which is the lowest overall percentage.  Only once have we seen a -4% drop during the day,

VXXmoc

 Below is the VXX compared to the SPX on the 5MIN Chart.  They are nearly equal percentage moves, offset by 0.02%. If you wanted an entry point, the crossover would be your validation.

vxxspxcomparejan5

TAKE AWAY:

You have seen validation of our contextual “percentage move” strategy on trading Long Calls and Puts using the VXX as a day trade opportunity for profitable outcomes.  It’s not a perfect science, and one must intuit their own trade execution, but overall VXX has proven this pattern more than 80% of the time when market performance is -1% overall, with high sell off volatility.

Time to buy GOLD.

PEACE!

SKOKIE

Disclaimer:  I’m not predicting or recommending you make these trades.  It is purely for educational purposes to provide you with a sharper image of how the market works so you develop your own strategic plan.

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