DARVAS BOX – TWTR LONG CALL – GRTS GENERATOR

Getting back on track with technical statistical analysis our summary Excel formulas assist in defining the optimal option premium/strike price to trade based on a number of values, set into our GRTS GENERATOR.  This is an all encompassing statistical data Excel spreadsheet that combines the underlying asset statistical analysis with their respective option chain.

We’ve calibrated a specific equation to signal an alert when a percentage pullback from the 52WK price high at a minimum of 12% with the optimal being 20%.  Second, the asset must show a higher than average liquidity characteristic for intraday trading.

On March 23rd TWITTER (TWTR) signaled an approximate 13% pull back from the previous high on February 26th of this year.

The 1HR Chart shows, compared to the Fibonacci Retracement, that TWTR bounced up from the 50% level, breaking through the 62% level, but there was not enough momentum in volume to keep it going north to the 78.6% level.  This is a fundamental move prior to a “breakout”.  Think of it like a sling-shot being pulled back before letting it go.  Typically, when you see a channel between the 50% and 62% Fibonacci levels that last over a week, there is a consolidation of inventory stacking up for a breakout.

This is where the DARVAS BOX (Devised by Nicholas Darvas who became a millionaire within 18 months by using this method) can validate your point of entry and exit.

 

DARVAS BOX STRATEGY
DARVAS BOX STRATEGY

The white rectangle box on the chart is the DARVAS BOX, starting with the high price point and down to the support (last price) for the closing day.

On Monday (March 23rd)  TWTR price went up, making a momentary breakthrough – $48.86 –  before fading back to $48.48 at the close.

Moment of truth was seen during extended hours – the light gray area on the chart – showing that the trend continued to favor the upside. Going into the opening today, TWTR confirmed our analysis that it was a Long Call buy.

Before the close, the price trend surpassed the +7.3%, closing at a a +8.21% overall move from Monday’s support price of $48.06, the best entry point that would have been covered on the intraday pull back before the close.

Taking a look at our GRTS Generator Excel spreadsheet, you can see our profit on the Front Month (APR), where we entered after it broke the “Previous Resistance” high price, shown on the 1HR chart.

Look for the “FRONT MONTH” to see our profit.

TWTR
Stock quote and option quote for TWTR on 3/24/15 07:12:41
DOW S&P NASDAQ RUSSEL 2K VIX
-56.31 -6.18 -1.16 1.94 0.7918
-0.34% -0.32% -0.04% 0.10% -0.08%
 
Mrkt Prfm Volatility Liquidity OTM Signal Last To Open
-0.150% -5.83% 0.20% Call Above
P TWTR Q
Asset Price 51.54 C-Return 1.0080
Net Change 3.080 Open-Last Inverse -0.0080
Price Action 4.310 2.87 Inverse P Act 0.0848
Bid 55.85 Net Ratio 50.8514 0.0283
Offer 51.46 0.715 0.4013 0.4869
Strategy Protective Put – April Long Put
Strike Entry Max Loss Stock Decline IV
50 1.22 2.26 47.74 0.3650
Front Month   Back Month
$70.55 -$62.00 $80.81 -$54.46
APR 15 (24) 100
03/24/15 05:17 PM
Call Front Month   Put Front Month
Premium 1.73 Premium 2.45
Entry Price 1.32 TWTR Entry Price 2.14
Intrinsic 1.65 Intrinsic 2.37
Premium TGT 1.98 Premium TGT 1.67
Delta Hedge 0.3792 Delta Hedge 0.3522
Gamma 0.0103 Call Spread Gamma 0.0246
Ask-Bid Spread 0.02 ~ Ask-Bid Spread 0.02
Prob Density 1.4489 Put Spread Prob Density 1.8033
Profit/Loss $70.55 ~ Profit/Loss -$62.00 

The “take-away” here is the validation of the move, and in this case TWTR came through, more so by breaking the 78.6% Fibonacci ceiling, closing today at $51.47.

The advantage of using this statistical analysis spreadsheet (plugged into the TOS platform) is its real-time data feed that gives you the opportunity to see which side of the option chain is being favored overall.  It may come early or it may take some time, but given our incorporation of the Covered-Call Return formula (shown in the GRTS Generator table as ‘C-Return’*, and Price Action indicator, we can have “leading indicators” that are based on computational mathematics – adaptive to the inputs and parameters calibrated to our own proprietary formulas.

You can have this GRTS Generator Excel Spreadsheet (Available in Apache Excel only), if you use TOS, for a token fee.  All equations and formulas are based on the conceptual approaches presented on Tastytrade by Tom Sosnoff and his team of experts and is meant to augment the Dough options trading platform as a means of seeing the reality of their formula constructs in real-time.

*C-Return:  This is a Covered-Call Return monetized formula.  If the the “Inverse” number is higher, than it’s a signal to lean into the Put side of the underlying asset.  This can change during intraday trading.

For more information regarding the GRTS Generator Excel Spreadsheet send me an email. If you’d like to request the GRTS Generator for a specific equity/asset you’re looking at trading, we’ll put it together for you, for a token payment.)

(Note: This presentation is for educational purposes only and not intended to predict or influence your own trading decisions.  The purpose is to show how technical analysis provides more in-depth insight versus the traditional indicators that are all based on historical data.  Using the Excel spreadsheet, we be more systematic by providing statistical simulations in the process of day trading.)

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AAPL A DAY KEEPS ON GIVING

If you’re interested in a seeing a brief explanation of how I traded AAPL’s FEB Option Chain – Long Call then watch this video on my YouTube Channel.

In this video I show my strategy using some basic parameters.  These are Fibnoacci Ratios, Exponential Moving Average chart overlays and the options charts for my entered Long Call trades at the 115 and 120 strike prices.

Your take away is identifying: the optimal premium strike price in relationship to the volatility of the underlying asset and knowing when to exit the trade – price exhaustion.

 

Peace.

Trading With Rich

JAN 7 – TGT SETS RECORD HIGH – OPTION PLAY – FYI: FOMC

(Disclaimer:  This post is for educational purposes only.  I am not making any trading recommendations nor can held liable for one’s losses.  It is entirely up to you to decide what makes sense.  The take away here is a template formula that you can use for your own strategy building model.)

S&P 500,  DOW and NASDAQ are all bullish currently.  FOMC meeting minutes will be released at 2PM (EST).

Symbol Price Offer Net Chng P Act IV 15D SV SD P Target
TGT 76.56 76.81 2.59 0.2118 0.1455 0.50 1.26 79.682

Target (TGT) climbed during extended trading yesterday after the closing bell, only to skyrocket this morning breaking its previous 52 week high.  The trajectory peaked at $76.93 before the jet pack ran out of fuel.

We’re in a mid-day session pull back and flattening out at $76.61(-0.12%).

TGT started its Bull Run on November 11, 2014, after a long dry spell caught in a sojourning price range.   If you missed the November 18, 2014 entry point to capture the final leg up, then it’s pretty much a done deal for anymore excitement.

What could have carried TGT to a new high are two items:  The Christmas Ugly Sweater competitions and the announcement that Google (GOOG) partnered up with TGT on their latest “Art, Copy, & Code” interactive, in-store mobile experience designed to thrill Target consumers of all ages.

Context and Analysis

The  JAN 15 with 9 days left to expiration.  The IV (Implied Volatility) Rank is 65% and the HV (Historical Volatility) Rank is 45%. In our strategy rule book that’s a “SELL” signal.  Currently, the Price range standard deviation is 1.26, which in offsets the “SELL” signal because it’s higher than the HV.

The JAN 15 option chain Implied Volatility is 26.59%.  We can recalculate the Implied Volatility using a matrix equation that determines the “true” IV with a preset of percentages applied to specific days.  This formulary comes from the team at Tastytrade/Dough.

We’ll use the 0.577% (7 DAYS) to adjust the current IV: .2659 x 0.577 = .15%

This tells us that there is a 15% IV potential of premium movement up to the day of expiration.

On the Call side: There are +10K open interests at the 76 Strike with a net change of +1.06 gain on the premium.  The current Mark is 1.49, pulling back from a 1.55 high.

On the Put side: comparatively there’s not much open interest to be seen, except a +2K at the 75 Strike.  Net change is -1.07, comparatively to the Call net gain.

Contrarian Play

TGT historically doesn’t hold its new high price levels.  More of a range bound price formation trait, We’re going to watch TGT to wait for a “reduced cost basis” PUT premium price on the JAN 15 option chain at the 76 Strike price that is currently hovering around .95 with a day high of 1.04.

That means we’re watching for another price move upwards into an already overbought scenario ; the underlying target price is $75.50 – first red arrow – (34 Exponential Moving Average – EMA) to the breakout from the EMA consolidation – second red arrow – as shown on the chart below.  If TGT returns to the EMA consolidation breakout (that might become its new support price, we’ll have a 3% move on the premium.  One PUT contract will bring an estimated profit of $144.

Our strategic rule on this one is when the asset skyrockets in one day, they’ll be a 50% retracement back down from the highest high.  The hypothetical price target posted in the graph at top gives us an idea of the potential of price move still left in the underlying before entering our Long Put on the JAN 15 76 Strike.

 

PEACE.

Skokie

tgtputtrade

JAN 5 – VXX CYCLIC MOVE VALIDATIONS

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.

JAN 2 – SKOKIE’S BACK WITH 15 TRADING SETS UPS FOR 2015

01/02/15 04:49 PM

 

Symbol

Price

Offer

Net Chng

P Act

IV 15D

SV

SD

Trend

LST>OPN

52WK

1

TSLA

219.31

219.01

-3.10

-0.4475

0.2752

0.69

4.19

<

FALSE

-24.74%

2

HD

103.43

103.14

-1.54

-0.3575

0.1214

0.46

1.27

<

FALSE

-2.44%

3

UNG

14.96

14.88

0.19

-0.0820

0.3167

0.74

0.34

<

FALSE

-46.36%

4

LOW

67.70

67.47

-1.10

-0.2750

0.1265

0.47

0.86

<

FALSE

-2.69%

5

TWTR

36.56

36.65

0.69

0.0660

0.3243

0.75

0.49

>

TRUE

-48.09%

6

PWRD

19.25

19.37

3.49

0.1095

0.1762

0.55

1.47

>

TRUE

-26.65%

7

FB

78.45

78.46

0.43

-0.0235

0.1995

0.59

0.48

<

FALSE

-4.53%

8

AAPL

109.33

109.09

-1.05

-0.3180

0.1939

0.58

1.70

<

FALSE

-8.70%

9

FDX

172.45

172.32

-1.21

-0.2460

0.1256

0.47

1.67

<

FALSE

-6.03%

10

JNJ

104.52

104.46

-0.05

-0.1365

0.1096

0.44

0.55

<

FALSE

-4.54%

11

WFM

50.13

50.04

-0.29

-0.1195

0.1716

0.55

0.49

<

FALSE

-13.21%

12

GME

33.80

33.78

0.00

-0.0345

0.3123

0.74

0.35

<

FALSE

-32.40%

13

VXX

30.99

30.92

-0.52

-0.0870

0.4659

0.90

1.06

<

TRUE

-43.88%

14

TLT

127.32

127.54

1.40

0.1275

0.0876

0.39

0.77

>

TRUE

-0.31%

15

YHOO

50.17

50.12

-0.34

-0.0750

0.2452

0.65

0.53

<

FALSE

-4.66%

About this graphic*:  At the very top of is the “Time Stamp”, then starting at the left we have the Number ID, Ticker Symbol, Close Price, Calibrated Price Offer, Net Change of the Day, Price Action of the Day, a calibrated Implied Volatility for a 15 day horizon, Statistical Volatility, Standard Deviation of the Price Range Set (Open, Current, Close, Day High/Low; Intraday Trend Directional Move, Boolean Logic (TRUE means current price is above the opening price of the day, FALSE means it’s below); the the price position percentage relative to the 52 WK High.  What more could you ask for in statistical, fuzzy logic analysis?

Context: What this shows as an aggregate picture is whether the asset is viable enough to trade  for a reasonable profit, proving insight to the directional move and price anomalies (PWRD).  We can compare pair correlations (FB and TWTR: Price Action is the leading indicator) and track “pull backs” during intraday trading (AAPL has a high Statistical Volatility).  We like to scalp VXX so here we see a disparity between the Net Change and Price Action that signals a change in direction along with the high Statistical Volatility meaning the price range is spread out.

THE TRADING TABLE

1TSLA:  Bounced off the Fib 50% (202.48) for a text book pull back to the 38% (220.88) then headed south again.  On our graph – it’s a bearish trend at -24.74% below its 52 WK High.

2) HD: Since early August HD has been on a tear north.  Peaking with gains at +30.91%, we have a SELL signal now, as it dropped -2.44% from its 52WK High going into 2015.  Trading volume has been light, but we expect HD to head south with the current cold snap jet stream plaguing most of the Midwest.  HD is headed to 101.48 so lean into the Puts spreads for the final days of the JAN options.

3) UNG: With another Polar system blanketing much of the Midwest and Eastern seaboard in the US, UNG has dropped -37.6% since before November’s Thanksgiving day, over -408% for the year, and -46.36% from it’s yearly high, we think it’s hit bottom at $14.77 showing a glimmer of reality pricing.  Since 2008 UNG has dropped -485% below freezing; breaking its low of lows in 20911 ($15.74).  We don’t usually trade UNG, but it caught our eye today.  Going into the first quarter UNG typically is a bullish play.

4) LOW:  We threw it in just to compare to HD. Your call.

5) & 7)L TWTR & FB:  We expect a diversification of directional moves here.  TWTR is headed north and FB is headed south simply because one is overbought and one is oversold. Do the historical price comparison to the see the diversion. FB is right now squared off on the 62% Fib or $78.40 (Close was $78.48, but that splitting hairs).  We have a near perfect Triangle formation, that is split at the middle, meaning a new pivot price level.  But gravity is going to make its play on  FB so hang on to your hats as the market roller coasters is going to make a roller coaster drop on Monday’s opening.  FB will follow with at least a $2 buck loss (great – “break even” – Long Put set up for a short play on the JAN 15 options) to the 50% Fib or $77.35.  Make this a priority play in your game book, and signularly the best profit maker in the coming week along side AAPL and HD.

6) PWRD:  This is an example of a High Frequency Trade price dislocation that you’re not told about on CNBC.  Absolutely “front running” illegal “quote stuffing” ping driven nanosecond machine driven algorithms manipulating price setting.  If you didn’t know, HFTs now have algorithms that scan the market and geopolitical headlines for “high impact nouns, adjectives” that translated into designated binary coded syntax calibrated to the their trading algos that will trigger trade executions even before you’ve gotten the news on Twitter. Talk about having your finger on the “pulse” of everything.  Consequently, HFTs simply overwhelm the market makers at the opening and you just put a hundred million dollars in your offshore account.

8) AAPL: (or should it be Macintosh?): We could make a living just off of AAPL.  Gotta love it’s volatility and measure of uncertainty these days.  Our last trade, JAN 15 Long Put limit price entry was $113.04 on December 29, 2014 with a target price of $109.18.   In two days we gained 4.31% in price move on our JAN Long Put at the $113 Strike.

13)  VXX:  Our “player”.  It gained about 6% in the first half of trading, retreated, then bumped up as the S&P 500 dropped a smug +53% going into the close.   We’re in lots of welcomed volatility on this one so it’s staying on our radar for scalp option trades.  We use VXX to cover any drawdowns when the picking is ripe, and it usually is during some point in time during the trading session.

9, 10, 11, 14, 15):  FDX is going to remain bearish.  JNJ is undecided.  WFM is not a buy and hold asset.  Oh, wow, CNBC said WFM is up a whooping +817%… since 2008. That doesn’t tell me where its headed. The WFM, SFM and TFM: an exercise in correlative asset allocation.  TLT can be a robust player when the market has a a lot of bearish volatility, and a back up to VXX.  So we threw it in the basket.  YHOO is predictability transparent.

We put in a deep in the money Long Call with the JAN 15 option chain back in October, 2014. The peak price target of the underlying asset was $53.54 by the time NOV option expiration came around.  Ah, gee we were off by $.14 cents!  YHOO is caught in a sojourn range since hitting a support price of $48.85, this one has an earnings report coming out 11 days after the JAN 15 option expiration so expect some pickup in volatility  YHOO has been unusually quiet (low volumes) since Christmas Eve. YHOO exhibited a typical 7-day cyclic run north, then just fell like a rock, nearly going back to the previous low.  

When we see a stock struggling to tread higher price levels, it’s a signal that a bearish play is formulating.

Peace.

Skokie

FITB – UPDATE

We presented an example of a Covered Call for FITB last week.

Using our NQ2 Engine’s inputs, the Option Chain inputs directed us to BUY a CALL at the $20 Strike Price with a Limit Entry Price at 0.42.

Using the Reduced Cost Basis formula, we’ve maintained our profit since the order was taken last Friday.

If you look at the previous chart we posted, you’ll see in the current chart that our NQ2 formula correlated with the technical chart analysis.

Today’s Day Chart at 11AM (PST)

2014-08-25-TOS_CHARTS

 

The Trend Line broken through the 34 EMA (Red Line)  and is headed toward the 144/89 EMA (Yellow and Blue Lines) junction.  The Trend bounced off of the 377 EMA which signaled a continuing Bullish trend.

The current price is $20.50.  Our target price is $20.76.  Once this price is hit, then we will consider closing out position.  The reason is our “Conditional Probability” is signaling a “fade” on the current trend with a Put Probability of Profit at .57% and the Call Probability of Profit at .34%.  Moreover, out input parameters are indicating that the Book Order Limit Price is $20.75.  As well, our trade Delta is .71 with a 70% ITM, listed on the TOS platform.

Here is the Excel spreadsheet’s current data report.

LIQUIDITY TREND IV SIGNAL
0.21% LOW BULL CALL

 

DERIVATIVES – COVERED CALL
Call Return 0.75 Inverse 0.25 Monetized 1.50

 

OPT TRADE STRIKE CURRENT LIMIT ENTRY TGT P
CALL BUY 20.00 0.65 0.57 0.89
PUT SELL   0.10 0.09 0.40

 

(Disclaimer:  We are not recommending trades.  This post is for educational purposes only.  We make no claims of performance past of future of this asset.  Feedback is welcomed.)

COVERED CALL – PUTTING CONTEXT IN REDUCING YOUR COST BASIS

Cut-to-the-Chase Formula for Long Call/Put Analysis.

(Read this so in the future you’ll understand how we get our Limit Entry premium for going Long either with a Call or Put and/or reverse your position by Selling – creating appropriate option spreads.  The original contents of this post was posted on a prominent trading brokerage platform that  immediately censored – blocked and deleted my post – citing that it broke their forum posting rules.)

Note:  Credit goes to Tom Sosnoff and his brilliant staff at Tastytrade/Dough for the initial presentation of this options trading methodology. I have tweaked it a bit only as a means to augment the fundamental inputs.

The Covered Call Strategy

We present a qualified simple formula to reduce your limit price entry cost.  We’ve posted our excel spreadsheet data to show how it works.  The key to our work is “transparency” with the exchanges Bid/Ask pricing – e.g. BATS has laggard price formations versus, say NASDAQ.

For tomorrow, we’ve set up a SEPT (21) Limit Entry Long Call for FITB.  This is based on our preliminary scan – from our proprietary NQ2 model.

OPT TRADE STRIKE CURRENT LIMIT ENTRY TGT P COST CLOSE
CALL BUY 20.00 0.49 0.42 0.66 131.76 207.51
PUT SELL 0.10 0.09 0.49 34.08 137.30

SEPT OPTION LONG CALL:  FITB (Fifth Third Bancorp)

From Left to Right the above graphic is explained:

“OPT” designates the Call/Put rows; Trade Signal which is verified to be a Long Call, since the Put signal is “Sell” (based on a volatility calculation); Strike Price is listed for the Call Premium that is next under “Current”. (FIFTB close price is $20.25, that gives us a $0.25 edge since we’re going to be executing a debit trade.)

“Limit Entry” is a proprietary calculation that we use to reduce our cost basis – anticipating what is most likely the pull back premium price for tomorrow’s opening – typically during the first hour.

This is so we capture (most times) a profitable position and/or set up a “buffer” or “risk aversion” entry.  The “TGT P” is the calculated Target Price based on the underlying liquidity.  This will change during the day, but it gives us something to shot for and moreover to compare to the chart for technical moving averages overlay price levels.  “Cost” is our initial capitalization and “Close” is what the amount gained.   Our potential profit is $75.75, having taken out our commission fees.  We calculated our risk aversion cost (not shown here) to be $17.33.  The Call Ask/Bid spread is 0.4 (four cents); whereas the Put spread is currently .11 (11 cents).

Covered Call Formula & Limit Entry Price Calculation to Reduce Cost Basis

What we want to know over all with the underlying asset is its “Liquidity”.  Thus, we calculate this by simply dividing the assets volume to shares.  If “Liquidity” is below .50% than it is considered “LOW” and there will be little price action until the Liquidity goes up.  (1% or higher is preferred for determining the Premium’s price movement and Ask to Bid spread.)

The “TREND” is determined by the current price compared to the “OPEN” price when the market opened for the day.  The “IV SIGNAL” is a calibrated formula using Implied and Probability statistical equations to determine which side of the assets option chain to lean into.  We’re searching for “robust” Long Calls.  Robust is defined as being above average in performance that moves individually from the overall market performance.

LIQUIDITY* TREND IV SIGNAL
0.16% LOW BULL CALL

DERIVATIVES – COVERED CALL

Call Return 0.67 Inverse 0.33 Monetized 1.34
*We are writing this “after hours” when the market is closed.  Thus, the “Liquidity” is skewed because the necessary input parameters are not operating within the intraday activity – correlated to the market indexes performance.
Taking the “underlying asset” into account, below is our data inputs and parameters to watch for validation, continuation of our chosen directional move and/or a pending reversal.
The “Price H/L” price is above is a positive sign that the price will continue upwards.  The “Average” is the Mean, and the “Offset” is a calibration from our formula set; similar to One Standard Deviation of the underlying price.  Currently, this is above the “Last” price that validates the probability of a profitable Long Call.
This price will drop below the “Last” during intraday trading.  The key is to the number of occurrences that occur; that signal a continuation of the Trend, or a soon to come reversal.  (If we notice a “Flash” with this price – that is a “ping” that causes an anomaly of the price range, than it’s a signal that High Frequency Traders are testing the market to “bait” Institutional investors into unloading large inventory orders.
That brings us to the “Decay”.  This is rather ingenious: a hybrid calibration of Time Decay and Duration formulas.  Right now, with the market closed it is a high percentage, because it is tied to the Bid and Ask spread of the underlying asset.  What we ideally are looking for is a value around .25% to .45%.  Moreover, what is not shown here is our NQ2 Greeks – the Alpha, Beta, Sigma and Omega value parameters that validated FITB to invest in with a Long Call option.
EQUITY – FITB
Last $20.25 Average $20.13
Net $0.15 Offset $20.30
Open-Last $0.17 Decay 2.64%
Price H/L $20.51 $19.99 $20.16
TECHNICAL CHART ANALYSIS
FITB TECH CHART
Above is the FITB Day Chart.   The breakdown is this:
EMA Overlays Price Levels
The Line Trend has bounced off of the 377 EMA (Green Line) going upwards toward the 34 EMA (Red Line) having crossed over the 13 EMA (White Line).  Above this is the 144 EMA (Yellow Line), tied in the 89 EMA (Blue Line).  There are not Binary Events posted (Earnings or Dividends).
Price is Everything
The 377 EMA has set the Support Price Level at 19.51; 34 EMA Price is 20.37 – about 0.10 above the current “close” price of the day 20.25.  This gives us some breadth for more upward movement.  The 34 EMA (Red Line) can become the Resistance Price, which we will watch for during tomorrow’s session.  Above this is the 144 EMA and 89 EMA that set the farthest out Resistance price at 20.77.   The 13 EMA (White Line) is at 20.01.
Taking a look at our “Equity” block – the Average Price is 20.13 that falls within our “Price H/L of 20.51 and 19.99.  Our “Offset” is 20.30, close to the 34 EMA price at 20.37, so we still have a playing field for a scalp play, if necessary.
Oscillator
The DMI oscillator shows the beginning of a Golden Cross – Bullish Signal.
Price to Premium
The current premium for a Long (Ask) Call at the Strike Price of .49 with a 0.4 spread.  (Incidentally, this is a good sign when the market is closed, showing that the Bid/Ask spread remained tight, reflecting the fact that there is still a truckload of inventory waiting to be exercised on the trading desk.)
Trend Percentage
Not shown on the chart (it wouldn’t show up) is the Trend move from the point the Line Trend hit the 377 EMA (Green Line); and in “fractal”** increments, moved +4.05% or +$0.79 (11 Bars) over the past 14 days. (Todays move was +0.76% or +0.15.)
If FITB pulls back in price tomorrow – most likely it will be to 20.01(13 EMA) or 19.99 as our “Equity” block shows.  That is roughly a .25 cent pull back, or .017 in premium terms, without calculating Delta and Theta.  Thus, we came up with .42 as our Limit Entry order to reduce our cost basis, and brings us into a profitable position… because, the DMI is signaling a Golden Cross. (This is a contrarian method to the traditional arithmetic of finding the mean price between the Bid and Ask to be the Limit Entry Price.)
Lastly, that “Green Oval” on the chart is our Long Call Limit Entry Order position, right between the 34 EMA and 13 EMA.
Time Horizon
With the 144 EMA gapping above the 377 EMA, there is a consolidation of price forming.  With the sufficient drop back on July 16 – we’re over a 30 day window – coming into the final 15 days of our 45 day time horizon.  So, we’re coming in on the tail end of the price volatility, before a new directional pattern forms.
** In consideration of Nodes and Edges physics, we are working on a new math formula that is based on quasicrystal formularies – addressing Hilbert’s 13th Problem.  This is mainly to prepare for the Quantum Computers programming that takes the binary code and translates it into “Qudits”.
Below is our excel spreadsheet formula solution set that automatically calculates the Covered Call Return percentage.  “C-RTN” is 0.67 which is the value signal that validates a lean into the Option Call.  “Inverse” 0.33 is the opposite value.  If we have a near equal C-RTN to Inverse then we are cautious about a mean reversion and or the underlying is starting a price fade phase.  If the Inverse were 0.67 and C- RTN was 0.67 then we would consider purchasing a Long Put at the OTM Strike Price premium. (Still, one must consider the Bid/Ask spread, looking for a tight, consistent spread, which is another validation that Open Interest is keeping the volume momentum above average.)
For C-RTN price entry, we take the At-the-Money Strike Price for our chosen option month (10 to  45 days out).
The “Context” is Out-of-the-Money (OTM) and “In-the-Money” (ITM).  We want the ITM value that is larger than the OTM comparatively 0.59 to – 0.73.  The Intrinsic Value is calculated based on the “Monetized” formula, and below this “MON VALUE” is the high and low price range during intraday trading.
COVERED RETURN
MONETIZED C-RTN Context INTR VALUE
1.34 0.67 OTM 1.25
MON VALUE Inverse 0.59 EXT VALUE
21.78 0.33 ITM 0.04
18.72 0.87 0.73
Covered Call Excel Formula
A1-5 are Labeled.
A1 – TICKER;
A2 -CYCLES;
A3 – MONETIZED;
A4 – COVERED RETURN;
A5 – INVERSE
B1-5 are the Inputs/Equations.
B1  TICKER Symbol
B2 – Type in the number 5 – This is the remaining months in the year called ‘cycles’
B3 – Monetized Formula =SUM(Bid-Ask)/Cycles+Ask
[When the asset is over $100 you’ll need to write the formula as: =SUM(BID-ASK)/Cycles+ASK*0.1]
B4 – Covered Return Formula =SUM(Monetized*Cycles)*0.1
B5 – Inverse  =SUM(1-‘Covered Return’ outcome)
For Example here is a NFLX set up we did earlier this week.
NFLX $468.58 (We’ll take the SEPT (31) Option Chain @ $470 Strike since NFLX shows a robust trend upwards.
B1 – 5
B2  =SUM(12.95-13.15)/5+13.15   Answer: 1.40
B3  =SUM(0.37*5)*0.1  Answer: .70
B4  =SUM(1- .70)   Answer: .30
You’re Take Away is that NFLX has a higher probability of profit if you Buy a Long Call entering ATM.  We used the 470 Strike Price.
Next: Reducing your Cost Basis with a solid Limit Entry Price order.
Generally speaking, once you purchase a Premium, you’ll lose 1/3rd of the value.  Within 15 days the premium decay is another 3rd.  Empirical data shows that 45 days seems to be the bell curve peak for a probability of profit outcome, or when you would considering taking your profits off the table, if you haven’t already.
A simple way with a robust outcome is to divide the at the strike Ask premium price by 16.
For confirmation we calculate the Limit Price difference from the Premium to the underlying price on the chart at 15mins – to determine if the pull back is feasible to take the limit price.  The square root of 252 trading days is 16, thus the use of 16ths that is correlative to any other TC method’s outcome.
The NFLX Limit Order Entry was 11.07 to BUY a SEPT (31) LONG CALL @ 470; x2 Contracts.  Our profit $664.00.
Note: We use a hybrid Time Decay Formula calibrated to ‘Duration’ that provides an explicate outcome.  At the time of our trade it was .24%.
(Disclaimer: We are not recommending trades and will not be held liable as such.  This post is strictly for educational purposes and posting the development of our NQ2 Model. The reader agrees to taking responsibility for their own trading regardless.  The formula(s) presented are “hybrids” so one must take extreme caution in understanding the “bootstrapping” aspect of this post.  Constructive questions, feedback , insights are welcomed. We encourage you to use the Santa Fe Institute – Complex Systems curriculum for more academic information and insight.)

IN PLAY – MSFT LONG CALL

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.)

NODA QUANTA QUDIT PLATFORM -WFM

It’s a recipe of quantum physics mixed in with some quantitative calibrations integrated with statistical valuations – all calibrated upon the advanced new mathematics of “nodes and edges” in fractal quasicrystal research.  We’re looking into the future of Quantum Computers – based on the latest news that the binary code of 1’s and 0’s will be translated into the “Qudit” via a new and improved silicon chip will be programmed.

Fundamentally, the data inputs and parameters are going to dramatically change.  Meanwhile, we’ve re-calibrated our excel spreadsheet nodes and edges to post some insights.

Derivatives: The data posted is a snapshot of the intraday trading movement;  providing the most important signals for discretionary trading of the equity option chain.  Liquidity ought to be .50% or higher for greater price movement; Trend determines whether to lean into the Call or Put side.  Implied Volatility (IV) Signal is formulated by a number of statistical volatility and probability inputs.

Notable is the “Offset” and “Decay”.  Offset is a determinate of what the book order price is currently at and the Decay is a “Duration” calibration to Time Decay.  The lower the number the more favorable will be the outcome for a Call position and vice versa.

Price High/Low is the range that can be attained during intraday trading.  The far right price is the Harmonic Mean price.

TICKER – WFM
LIQUIDITY TREND IV SIGNAL
0.32% LOW BULL CALL
EQUITY
Last $39.01 Average $38.88
Net $0.45 Offset $39.06
Open-Last $0.18 Decay 3.29
Price H/L $40.16 $38.31 $38.91

Nuts and Bolts

DERIVATIVES
Covered Call 0.86 Inverse 0.14 Monetized 1.72
OPTION CHAIN – SEPT (35)
OPT Limit Premium Target Price Entry Gain Capital Gain PROFIT
CALL $1.34 $2.00 $104.25 $392.26 $288.02
PUT $1.02 $1.19 -$0.66 $230.97 $231.63
OPTION CHAIN – NOV (98)
CALL $3.20 $2.54 $444.57 $499.78 $55.20
PUT $2.60 $2.86 $84.50 $512.55 $428.05

The above post shows the Covered Call Return percentage.  The higher the far left number is to the Inverse, the probability of maintaining a profitable Call will be attained.  This is based on the Strike Ask premium.

We post two months – which is SEPT (35) and NOV (98) hypothetical outcomes – based on a calculated Limit Entry Price.  The Limit Entry Price is calibrated from the Time Decay equation.

(Disclaimer:  These posts are for educational purposes only and are not meant as trade suggestions nor have the intent to be so.  You must discern using your own strategy when investing in the stock market.  We are presenting results from a quantitative model we’ve been working on, providing the feedback data in this blog.)

GOING INTO THE CLOSE – LAST 30 MIN JUL 18

3 PORTFOLIOS – TEN ASSETS EACH – FINAL

Aggregate Performance of the selected ten equities is compared to the current overall market performance (INDEX).

You can use this data to determine whether to trade the asset and/or option chain. All are optionable.  Note: The first two tables have a 25 share listed for the bottom asset.

The take away is to show what is a conservative estimate of profit when buying just the asset itself, and a calibrated to the current market indexes day performance.

(1)

AGGREGATE PERFORMANCE
Expected Return 3.59%
INDEX -0.00%
LIQUIDITY 2.62%
TREND UP
CHANGE PLUS

 

GRTS PORTFOLIO JULY 18
TICKER TRADE ENTRY FORECAST LMT SRPD SHARES COST PROFIT % GAIN
ELY LONG 8.75 9.37 0.62 10 84.46 5.05 0.06
CCJ SHORT 21.19 20.45 -0.74 10 214.55 -8.17 -0.04
CRUS LONG 24.7 25.16 0.46 10 244.04 2.94 0.01
CIG LONG 8.79 9.25 0.46 10 88.46 4.39 0.05
CY LONG 10.82 11.29 0.47 10 109.93 3.46 0.03
BBD LONG 15.82 16.3 0.48 10 158.90 4.19 0.03
AU LONG 18.35 18.84 0.50 10 186.48 4.31 0.02
CVC LONG 18.79 19.28 0.49 10 190.06 3.23 0.02
FCX SHORT 38.56 38.57 0.01 10 387.37 -1.10 -0.00
ARMH LONG 42.4 43.37 0.97 25 1081.00 16.24 0.02

 

(2)

AGGREGATE PERFORMANCE
EXPECTED RETURN 3.13%
INDEX 0.07%
LIQUIDITY 2.97%
TREND UP
CHANGE PLUS

 

GRTS PORTFOLIO JULY 18
TICKER TRADE ENTRY FORECAST LMT SRPD SHARES COST PROFIT % GAIN
EXXI LONG 21.13 21.71 0.57 10 209.05 3.65 0.02
CNQ SHORT 45.18 44.53 -0.65 10 452.83 -8.31 -0.02
FSC LONG 9.79 10.02 0.23 10 98.40 1.89 0.02
FCS LONG 16.86 17.34 0.48 10 170.31 3.58 0.02
EXC LONG 32.15 32.32 0.17 10 323.08 0.35 0.00
AUY LONG 8.28 8.71 0.44 10 83.75 3.45 0.04
FBHS LONG 38.04 38.62 0.58 10 385.63 4.07 0.01
ABT SHORT 42.68 41.54 -1.14 10 429.15 -14.00 -0.03
CLNY LONG 22.67 22.91 0.24 10 227.53 1.66 0.01
EGO LONG 7.44 7.94 0.50 10 75.98 3.57 0.05

 

(3)

AGGREGATE PERFORMANCE
EXPECTED RETURN 2.60%
INDEX 0.05%
LIQUIDITY 2.76%
TREND UP
CHANGE PLUS

 

GRTS PORTFOLIO JULY 18
TICKER TRADE ENTRY FORECAST LMT SRPD SHARES COST PROFIT % GAIN
CIT LONG 43.77 43.96 0.20 10 439.33 0.22 0.00
BKD LONG 35.46 35.98 0.52 10 357.16 3.27 0.01
EA LONG 38.13 38.75 0.62 10 385.25 2.54 0.01
BEE LONG 12.03 12.45 0.42 10 121.43 3.11 0.03
COH LONG 33.92 34.79 0.88 10 344.23 4.57 0.01
BK SHORT 38.24 38.32 0.09 10 393.39 -1.95 -0.01
FE SHORT 31.76 31.83 0.07 10 322.75 -1.11 -0.00
ADM SHORT 48.01 48 -0.00 10 482.57 -1.69 -0.00
GM LONG 37.19 37.63 0.44 10 374.31 1.98 0.01
AMTD LONG 30.99 31.56 0.57 10 313.06 3.64 0.01

 

(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.)