90% Probability of Success in SPY? Testing a Simple Strategy!
Hey everyone! I want to share a trade idea I'm testing on the SPY ETF.
Based on weekly data since 2000, I've noticed the following pattern: if last week's closing price is higher than the week before and the candle's body (the difference between the opening and closing prices) is larger than usual, there's a 90% chance that the next closing price will be above last week's low.
With that in mind, today I'm planning to sell a put option with a strike price close to last week's low (553.86), expecting the price to stay above that level until the end of this week. If this happens, I'll collect the premium from selling the option.
Why I'm Sharing This:
I'm more interested in sharing the analysis and seeing how it works out rather than discussing profits or losses. I believe this is a good way to generate information for those who also like to explore the market in a more statistical and objective way.
Remember: this is not a trade recommendation. It's just an idea based on historical patterns that I'm testing.
Let's see how it plays out! Has anyone else tried something similar? Feel free to share your thoughts in the comments!
Based on weekly data since 2000, I've noticed the following pattern: if last week's closing price is higher than the week before and the candle's body (the difference between the opening and closing prices) is larger than usual, there's a 90% chance that the next closing price will be above last week's low.
With that in mind, today I'm planning to sell a put option with a strike price close to last week's low (553.86), expecting the price to stay above that level until the end of this week. If this happens, I'll collect the premium from selling the option.
Why I'm Sharing This:
I'm more interested in sharing the analysis and seeing how it works out rather than discussing profits or losses. I believe this is a good way to generate information for those who also like to explore the market in a more statistical and objective way.
Remember: this is not a trade recommendation. It's just an idea based on historical patterns that I'm testing.
Let's see how it plays out! Has anyone else tried something similar? Feel free to share your thoughts in the comments!
Note
Sold Put Aug30/553/0.83
Note
Hey everyone! After taking a deeper look at my SPY put sale trade, I wanted to share some additional thoughts on the risk-reward aspect of this position.
To recap: Based on a 91.48% expectation that this week's close will be higher than last week's low, I sold a put with a strike price of 553, close to the previous low (553.86), and received a premium of 0.83.
Risk-Reward Analysis:
Upon reviewing the historical data, I noticed that in the 16 instances where the price closed below the previous week's low, the average distance was 1.87, and the median distance was 1.12. This means that when the trade fails, the average loss tends to be greater than the premium received.
Conclusion:
While the high probability of success remains a strong point for this trade, it’s important to consider that in the few cases where the market moves against us, the potential loss could be larger than the premium. Therefore, I’m adjusting my risk management strategy to closely monitor the trade and consider adjustments if the SPY price approaches the strike.
This update doesn’t change my view that this trade has good potential for income generation, but it highlights the importance of staying alert to the risks and being prepared to act if necessary.
I’m looking forward to seeing how the market behaves this week, and I’ll be ready to adjust the position as needed.
Has anyone else done a similar analysis? Feel free to share your thoughts in the comments!
Note
Fortunately, the scenario played out as expected, and this week's closing price was higher than last week's low. This allowed me to keep the premium since the option expired worthless.
Even though the probability of success was quite high, I'm not sure the profit was worth it. I tend to be a more conservative trader, and the fact that the potential loss could have been much greater than the gain made me uncomfortable all week.
For those who are more aggressive, this might be part of your everyday trading.
Now it's time to think about the next trade! Have a great weekend, everyone!
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