If you knew the market was going to turn in a week

[Smart Money]

It sounds like you can pick reversals in the market with some accuracy, but guess that your method doesn't tell you how far or fast the move will be.

My suggestion would firstly be Bull Put spread for long or Bear Call Spread to go short. With these you are simply betting that the price will be above or below a particular price at expiry. You can go a little ITM to get more value out of them. It won't maximize you profit per bet, but probably will maximise returns over a series of bets as it seems to reflect the extent of insight gained from your TA. If your TA is any good then no problem doing multiple trades.

I don't trade in one week timeframes so don't know what sort of premiums you'll get.

A good alternative might be a directional butterfly, setting the body 2% OTM or whatever distance you think your TA reversal is telling you. Possibly the best risk/reward with these but I'm a bit new to them so others could comment further.

I'm also quite expert on TA and your technique may be plausible, but I'm skeptical that it has a high enough win rate over short one week time-frames. You should measure that anyway before selecting a trading strategy to exploit it.

Interested in the general type of technique you're using and I might be able to comment further (you don't have to give away your I.P., just general approach).

Thanks for your reply. I liked Epicurus' as well.

Like I said, the source of the accuracy for this method baffles me. My usual bread and butter is momentum-based strategies that are sensitive to when sentiment is changing. I do have some "catch a falling knife" methods I play with that work in a similar manner. But both of these are looking only a day or two in the future. In fact, I've made predictions here at E.T. that made people recommend I use them to day trade instead of swing trade.

But this one is different. I think it works by considering the flow of money from one kind of instrument to the other. When one instrument goes south, investors move their dollars into another instrument over time. As an analogy, sort of like if the regulars aren't playing poker at the casino, you'll probably find them at the blackjack table. Or at least that's what I think is going on. It takes time for it to develop...like a few days...and it seems to only work as the divergence between the two instruments gets larger. My guess is that it won't work all of the time since it's possible that money might flow to other places in a different fiscal environment (like if the craps table suddenly opened up, you can't expect to find people at the black jack table if the poker tables are slow).

SM

 

[Smart Money]

Hey guys,

Here's an update. My friends suggested that I should try trading the "weeklys", or very short term positions since they are (a.) discounted and (b.) the move I'm expecting is in the short term.

I'm trying it with leveraged ETFs, to get a bigger bang for the buck. I'm using Robinhood just to test this out. Very small positions.

Does that sound right to you?

SM

 

[tommcginnis]

Hey guys,

Here's an update. My friends suggested that I should try trading the "weeklys", or very short term positions since they are (a.) discounted and (b.) the move I'm expecting is in the short term.

I'm trying it with leveraged ETFs, to get a bigger bang for the buck. I'm using Robinhood just to test this out. Very small positions.

Does that sound right to you?

SM

"Gamma Time!" (doooo-do-do-doot, de-doot de-doot) "Can't touch this!"

If you look at the degree of market movement impact on an option's value (the gamma), it is shaped like a gentle mound for longer-lived options. But that 'balloon' analogy earlier? As the time ticks away, and the air is let out of that balloon, the movement risk (the impact to delta) is concentrated to the market price, like a deflating tent.

So, the farther the option expiry, the gentler the effect of market movement.
The closer the market expiry, lesser, lesser, lesser, and the "POW! Right in the kisser!"
[a tip o' the hat to Ralph Cramden]

So again -- for long positions, even if the market moves in your direction, if your option is close to dying, the market response to that move will be much less than if your option had several weeks to go -- reflecting the market's diminished expectation of a move to/beyond the strike.