Strategy #1- Part 1
IMPORTANT READ
In my never-ending quest to provide real strategies and feedback on my trading, I am starting a new series. The series will be a rundown of the various strategies I employ, the methodology behind them, and the results. This will be Strategy 1. Future strategies will be numbered, with mini updates on the progress coming out in the subsequent parts.
The strategies could run parallel to each other, as some will be long-term while others will be short-term. This is a medium to short term strategy
Strategy 1 Break Down
We will be combining momentum, technicals, and financials to execute ITM (IN THE MONEY) options contracts.
Our universe will be stocks in the SPY 500 or NASDAQ. So use a watchlist to narrow down the list to these stocks.
Rule 1 – Use the 180-day SMA (Simple Moving Average) indicator. On a 3-year to 6-month time frame, make sure the stock chart is bouncing off the SMA indicator. The price needs to respect it. Each time it goes down and “touches” the line, it bounces back up. This needs to be a pattern not just the prior touch.
Rule 2 – This is about momentum. Trade bullish stocks in a bullish market, for this strategy stay away from bearish always. As a rule of thumb, never trade opposite of the market unless your tailored statagy calls for that Theoretically, since our perceivable universe in this strategy is the SPY and NASDAQ, our strategy could be a bust, but because the the market is overall bullish we could be justified in the end.
Rule 3 – Check financials, check news. This is more of a red-light indicator or a green light for more unit size in terms of your position. Either way, do not skip this part. Make sure no recent news would invalidate the theory here. Check 10-K and 10-Q; the company should be sound and in a good position to continue the bullish progress they have already made. Make sure the sector as a whole is trending in that direction. And make sure no major events would disrupt the stock that could affect the trade.
EXECUTION
Execute a 30–60 day ITM options contract. It is important to note the duration of the swing. Once you have established the stock is bouncing off the 180-day SMA, find how long since it bounces to reaching its previous high. This is where intuition comes into play. Some stocks are more volatile than others, which means the 30-day contract could be invalidated by the short time frame on a less volitile stock.
Full transparency I will be using this strategy on a Paper(Fake money) Account to start off.
If you have any questions feel free to contact me under CONTACT.
