Risk checking for spreads

In light of my small boffo yesterday I thought I might take a closer look as a sheet that I had setup a while back to try to determine risk and ideal spread strikes.

It involved using various Average True Range (ATR) periods with a weighting towards the more recent values to come up with a daily ATR value. This value is then just multiplied by the days to expiry for the potential trade to come up with a possible range to give me a target to look for.

I put in an adjustment for position from the current median value of the 80 day Linear Regression. This indicates a call spread strike higher when the price is near the top of the channel and a put strike lower when it is near the bottom.

The last item is a risk factor that widens the spread strikes depending on which spread (Call or Put) I am looking at based on the LR position again. Values are 1, 2 and 3. Call or Put spreads with the SPY price at the median use a 2, general risk. I might use these for an iron condor under certain circumstances. Call spreads with the price at the top of the channel get a 1 and at the bottom of the channel get a 3. Puts are reversed.

Puts are skewed farther with a built in factor as they are higher risk spreads in general.

Based on these numbers from today's chart I get a call strike to sell at 116.38. I would round up or down depending upon market conditions, it's only one dollar either way so it's not a big deal. The put comes up to 108.23.

Using my target pricing I get a decent call spread at 117-118...which was where I was trying to go yesterday around noon and goofed with another 116-118.

Where I was going with this was to look at the ATR for past 10 trading day periods to get a feel for what might happen over the next 10 days to the expiration of my spreads. I am almost $3 away now and the ATR for hte past 10 days is 1.09. Tha largest 10 day ATR I see in the past was around the $3 mark as SPY was coming off of the March lows... it has been higher but those were due to large drawdowns earlier than that...ATR for uptrends are more relevant right now as ATR peaks on down moves with a few exceptions.

Jeff.

ETF technical, HXD.TO

I was curious how the various ETF's were fairing, this one in particular. I was working on an ETF hedge entry plan that would make trading the opposing ETFs (bear vs bull) in such a way as to make them a risk free and guaranteed profit trade similar to a collar trade in options trading...sort of. I dropped the idea as too complicated but I may take it out and dust it off another time.

Meanwhile...

HXD.TO, Horizons BetaPro S&P/TSX 60 Bear plus.

Here is a five month daily chart, ending in September as the rest is just more volatility.

The blue trend line was the downtrend that I placed back in the early spring, I have not touched this chart in months. The yellow was the mean, roughly. While it was broken back in April I was going to watch the upper line. The SMAs are 10 - red, 30 -blue and 200 -green. The lower trend channel line is not present due to some idiosyncratic StockCharts isssue, but it was below the mean about the same as the upper is above. Had I been playing my CTP strtegy I would have been buying in the mid $15 range and targeting for the breakout.

I loved the convergence of all of the averages and the trend line as this just screamed "buy, buy, buy!" as the price hovered about the 200, then broke and tested it as support twice on the way up.

It's charts like this that make me want to drop day trading and return to the swing style of trading...maybe another time. Even currently the price is bouncing along the 50 sma nicely with five tests as possible buy in points over the last four months.

The best part, for those who like traditional trades, is that this does not need to be shorted to play the other side. Just plug HXU.TO into yur charting software and you now have the inverse of the same ETF, the Bull. Because the price is smaller for it now the averages work slightly different. One could just ratio the prices and buy one when selling the other to stay in a trade and keep the money working constantly while even overlapping the exit and entries a bit for a bit of a hedging factor. Just dump the one that moves the wrong way.

Back to HXD for a moment...Because this is tied inversely to the TSX this is not so much a chart of this fund as the trends would work exactly the same on the index chart that it tracks, inversely. The volume on this means nothing as there is no underlying value so it only indicates that more people are interested in the ETF as it relates to the TSX, not for it's own sake.

I have had trouble with the idea of ETF's for some time due to their derivative nature but they can make an interesting trade none the less. Some of them are priced reasonably for anyone to play around with.

Just another tool in the tool box.

Jeff.