Trying a New Strategy

I use a handful of indicators to determine whether stocks are overbought or oversold. While there is nothing wrong with this strategy, sometimes the moves in stocks on their way to being overbought or oversold can make money as well. This is called momentum trading and I'm not very good at it.

I'm a cynical guy, so I take moves in the market with a grain of salt. That's why I can perform well with a contrarian strategy.

Lately I've been looking at other indicators and their correlations with ones I currently use. One such pattern is with the MACD and the Commodity Channel Index (CCI).

Crosses on the MACD usually signal a continuation in the direction the stock is moving, but not always. I seem to have found a correlation that can signal when there is a "true cross" on the MACD. When the CCI crosses the zero line, it almost always coincides with a MACD cross. When the two match, the stock usually continues in the direction.

While indicators aren't magic bullets, telling you automatically when to buy and when to sell, they are good reference points. They guarantee nothing, which is why I am only dipping my toes.

So, XLE has gotten beat up but looks like it could rebound. It may also have a reversal... I don't know

Unfortunately, the IV just isn't high enough to sell premium, so I have to buy calls.

Here's the trade: +2 XLE March15 79/81c @ 1.00

Target is the gap just under 85, and I will attempt to leg out of this one just like MA.

One Last Home Run to Finish 2014

I've been quite busy writing papers and studying for finals, and I thought that I had posted about my entry into MasterCard (MA). Turns out I didn't.

Well about a week ago, MA was coming up as fairly overbought. So, like usual, I bought an ITM/ATM put spread, 3 of the Jan 89/91 for 1.00.

But I decided I was going to try a new strategy called "legging out." When put on a spread, you buy a contract and then sell a contract simultaneously. This hedges against losses but also caps gains. For a $2 wide spread, like 89/91, the max price of the spread is 2.00. So, if your short strike, in this case the 89 put, becomes ITM, you can take that off and "let the long put ride." This way, your gains aren't capped, and you can ride the downward momentum.

I was going to attempt to do this on YHOO and AAPL, but, as it turns out, I never got the chance because I was too early on entry. MA, however, worked beautifully. 

I entered short MA on that peak black candle, because I like to see black candles above bollinger bands with a declining MACD and RSI > 70. It's an optimal short entry. This is a textbook Bflakaz overbought short play.

So I legged out on 12/9, and just kept the long put, the 91 strike, on. I had originally bought this side of the spread for 1.85 (the short 89 strike was a credit of 0.85, making the cost of the spread 1.00).

I exited and sold those puts today for 5.45 for a profit of $1080!!!

I really was not expecting that kind of success! The recent market slip-up definitely helped my position, so I got lucky on the timing in some respects but WOW!


Also, I was eyeing Stratasys (SSYS). It was getting oversold and approaching support at 85. It hit support at 85 and immediately bounced, then pared losses on the day. I entered a short put spread, Jan15 75/80 for 1.20 shortly after it confirmed support. SSYS then rallied hard yesterday, and I bought it back for 0.50 for a $140 profit.


I'm very close to reaching 100% ROC this year, but I don't think I'll make it.

Bflakaz Trading Log 2014 Results

I most likely won't be trading much in December... finals, the Holidays, all that good stuff. It's been one helluva year!

The results are as follows:
Starting Capital = $25,000
Total Profit (gross) = $22,571.57
Return on Capital = 90.29%