2. The Setup
• Weekly Short Put Vertical
• First short vertical OTM beyond the expected move
• Should be less than .16 delta, > 80% POP
• Put on Monday morning at open
• Let expire or roll out for (credit or even) if wrong
• Expect approx. .50 or so in premium
3. Expected Move
• Expected Move = Price * (IV/100) * √(#days/365)
• Example:
• Expected Move in SPX for next Friday expiration =
• EM = +- 2108.58 * .1344 * √(6/365)
• EM = +- 36.33
• Range of: 2072 - 2144 ($1.00 for this IC today)
4. Thinkscript - http://tos.mx/PPe1lF
declare lower;
declare hide_on_intraday;
def vol = imp_volatility();
def data = if !IsNaN(vol) then vol else vol[-1];
def hi = Highest(data, TimePeriod);
def lo = Lowest(data, TimePeriod);
def AP = GetAggregationPeriod();
def len ;
if AP == 604800000 {
len = 5;
}
else if AP == 86400000 {
len = 1;
}
else {
len = 30;
};
input DisplayIVPercentile = yes;
input DisplayImpVolatility = yes;
input DisplayDailyEM = yes;
input DisplayWeeklyEM = yes;
input DisplayMonthlyEM = yes;
input TimePeriod = 252;
def Percentile = (data - lo) / (hi - lo) * 100;
plot EM = open * ImpVolatility() * Sqrt(len/365);
AddLabel(DisplayIVPercentile , Concat("IV Rank: ",
AsPercent(Percentile / 100)), Color.BLACK);
AddLabel(DisplayImpVolatility, Concat("ImpVolatility: ",
AsPercent(vol)), Color.BLACK);
def ImpPts = close * vol * Sqrt(1 / 365);
AddLabel(DisplayDailyEM, Concat("Daily EM +/- $",
AsText( ImpPts, NumberFormat.TWO_DECIMAL_PLACES)),
Color.BLACK);
def ImpPts2 = close * vol * Sqrt(5 / 365);
AddLabel(DisplayWeeklyEM, Concat("Weekly EM +/- $",
AsText( ImpPts2,
NumberFormat.TWO_DECIMAL_PLACES)), Color.BLACK);
def ImpPts3 = close * vol * Sqrt(30 / 365);
AddLabel(DisplayMonthlyEM, Concat("Monthly EM +/- $",
AsText( ImpPts3,
NumberFormat.TWO_DECIMAL_PLACES)), Color.BLACK);
5. The Results
• 144/156 weeks or 92% winners (last 3 years put side)
• Profit will depend on how we manage the losers
• Profit Approx. ($50 x 144) = $7200 minus managed losers
• Roll out to same strikes in next week cycle
• employ % credit received loss limit? (1x, 2x, etc.)
6. Takeaways/Discussion
• Expiration is rarely outside the expected move
• Can roll when wrong to same strike in next cycle for credit
• High probability of profit 92% historically
• Calls trade outside range more often
7. DISCLAIMER:
The purpose of this material is for education only. You must consider your
own situation and risk tolerance prior to entering into any investment. You
are assuming the entire risk of any and all trades placed in the stock market.
The Mechanical Bear, LLC. is not a licensed financial advisor, registered
investment advisor, registered broker-dealer or FINRA|SIPC|NFA-member
firm. The Mechanical Bear, LLC. does not provide investment or financial
advice or make investment recommendations. The Mechanical Bear, LLC. is
not in the business of transacting trades, nor does The Mechanical Bear, LLC.
agree to direct your commodity accounts or give trading advice tailored to
your particular situation. By using The Mechanical Bear website and
materials, you agree, at all time, to indemnify, defend, and hold The
Mechanical Bear (including and of its respective officers, directors,
employees, agents, or representatives) harmless from and against any and all
claims, actions, demands, suits, losses and costs (including attorney’s fees)
resulting from trades you place in the market. References and links to
content provided by dough, Inc. or tastytrade, Inc. are the property of that
organization and is only referenced for educational purposes. Please refer to
their website for additional details. All credit is given to them for the content
they create.
