CTP revisited, CTP-M or CTP-O?

Counter Trend Positioning, (CTP)

This was one of my better well thought out plans that I did not continue with once I saw the possibilities, it was time to try something else so it was left by the wayside to mellow.

I see a similarity in the trade ideas between CTP and the new Plan - M. While the execution is vastly different, the charting is very, very similar.

Here is one of my early CTP chart studies, it is not as clear but the over all idea is what I am looking for here. The idea that I was trying to play trades at the outer boundaries of a trend channel using a form of linear regression to place the trades at extremes before the intra-trend changed. I had trouble in that I would not allow wide enough stops to let the stock price do what it was going to do.

Here is the same stock in the same period with my current chart setup on board

Not a whole lot has changed. My linear regression forms the same trend channel, the red 20 week envelope confirms the down trend nicely, the W%R gives good validation to any trade entries....oh, but I am not entering stock trades.

In CTP I would use those boundaries as entries into long ans short trades. With spread trading I will be using the exact same idea but with the plan that I will sell premium into the change in intra-trend changes. Basically bet that the stock will continue it's trend and remain, roughly, within the same trend channel boundaries.

The main difference is that instead of having a stop out where I don't expect the price to go I will have my spread trade even farther out which allows two things:

1) the price is less likely hit a target that far out

2)even if it heads that way the trade is of short enough duration that it will expire BEFORE it gets there allowing me to still keep all premium collected.

This might represent a current chart with trades plotted. Now I don't know what is available for options on this but if I make the assumption that there are $1 strike options and they are penny priced and liquid AND I use a $2 strike spread....

There are 14 spread trades indicated by the blue lines. Those are the really rough start and stop periods as well as the sold option strike level. Assume that I was aiming for the 10% Return On Risk and I only use about $1000 as risk allowance. The real return would be $100 per trade based on 6 contracts providing just over $3 per day per trade in play. That is $1400 overall in the six month period.

There is a fair amount of overlap and some are EOM as well as 3rd Friday expirations, (another assumption... depends on the security), so the daily overall average is about $7.75. Slightly lower than my Optioneer goal but there I am aiming for $10 days per trade based on $4600 risk. Those trades are going to be longer on average and include a put leg as well every time.

A note about the W%R indicators on the bottom. They are 5 and 20 day periods and only serve to confirm that a move is a continuation and not likely a reversal. I could always choose to make a trade of the stock using the spreads to subsidize the trade... sort of a double dipping method. Placing a protective put in there as well would make this a four legged trade, sell a call, buy a call, buy or short the stock then buy a put for stock drop protection... maybe.

More tought for another day.

Jeff.