Please click on Image to enlarge.Do you like the chart format? this is an improvement in RET that comes with the "USA Stocks 2007 Powerpack).
You may ask, do we know that the flat (fl) wave b (not labelled) short term is completed? in all likelyhood it is. Here is my chart:
Please click on Image to enlarge.There is a skew between long term and short-term options and the IV is not too high on AOC. I see it as an opportunity to create a bearish PCCRC. Here is the position I have entered in the paper trading account where I am testing these bearish PCCRCs.
Please click on Image to enlarge.Here is that terminated wave B and the beginning of an impulse wave C already in progress.
Please click on Image to enlarge.It is critical to identifly conclusion of "2" waves, and I think that the recent double top does look like a wave 2 completed. If that is the case, then we may be catching on a wave 3 down, which should be quite profitable. I expect IV to grow with the impulse wave 2. We'll see....
This account is already above 10% in profits, not surprisingly.
A combination of Elliott wave analysis and PCCRC can be a very powerful instrument in the bear market that I foresee.
BTW, I am not the only bearish Elliottician. Take a look at this web site:
http://www.wavechart.com/free_elliott_wave_stock_market_forecast.htm
Here now is the bearish PCCRC account as the stock market closes lower. Note that the AOC trade was filled, and that other trades are pending for rollovers and others had completed rollovers. There is a larga amount of cash still in the account, and the profits have exceeded 10% in only a few days. I will keep you posted.
Please click on Image to enlarge.
10 comments:
Hi Juan thanks for sharing this trade
I would like to present my humble opinion on AOC
I'm wondering in this type of PCCRC (bearish) if the iv/sv ratio is a concern.
I also noticed that on a 1 yr iv chart AOC seems to be in the upper 1/4 Isn't that high for this type of trade?
I look forward to future discussions on bearish PCCRC's
Thanks
Midas
Midas, I am sure that by know you are thoroughly confused about all the systems that have been discussed here.
I suggest that you are going to have to make your own notes, make your own testing and draw your own conclusions.
For this particular situation, I have selected an Elliott wave Candidate as I am expecting to enter an impulse wave 3 down. IV is below 40% and the IV/SV ratio is below 1. In addition, there is a skew between longs and shorts, which is nice to have but not necessary. I am doing a Delta play to be sure, but I also see that Vega may continue to increase in the short run.
Others have indicated that they play delta neutral PCCRC's. I don't. I like to take advantage of all greeks if I can. If AOC falls as rapidly as I expect it to do, Vega will continue to increase. Therefore, I am not looking for "Vega crushed" options.
In other words, my bearish PCCRC is based on Elliott wave, not on Delta Neutral Options theory alone.
I have shown you an account that started with $100,000 and has now gained 11% with this strategy alone. ALL trades in this account have turned winners so far.
You may say that I have been lucky because the markets have turned bearish. But forecasting the markets is what Elliott theory is all about.
In my first DVD, I have explained in some detail how to search for and recognize patterns visually. I have confirmed such patterns with the RET software from Elliottician, but I insist that the software is not indispensible. In fact, I think RET will work better in the hands of a trader with pattern recognition experience. I also insist that to trade options vertically, Elliott is a MUST. But beware of softwares that do not follow the Elliott Tennets, the will mislead you.
Juan,
If you look closer to AOC risk graph you will find that it IS Delta neutral. If you enter this trade in 10/10/20/25 ratio at 40strike you will see that both graphs are almost identical. You will have same graph with Rick’s 5leg play, try 10/10/20/20 at 40strike +14x35 jan08 put.
You name it “Bearish”, I called it “ Delta Neutral” and for a change I can add “Balanced”. We all on the same page here.
I will not be surprised if there will be another 10 ways to create PCCRC with the same Risk graph. And I will be happy to explore them and learn on the way.
I never spoke about Elliott wave, just because I’m not good at it yet. As I said, it required time and effort to master it. So after some time, effort and confidence maybe I will speak about Elliott Wave theory if it will work for me as it worked for you.
Right now I’m looking for other than Elliott Wave triggers to enter Bearish/Neutral/Balanced PCCRC.
I’m testing it’s behavior during Earning Crush, I’m trying to spot pre-earning stocks with low IV, I’m backtesting it on IV Skewed stock and post-earning IV crush as well. And I have some good results. But still more research must be done. And if I’ll have something to share, I will. Because I believe it is welcome to share thoughts, ideas and experience on this blog.
Thanks
Davit.
From the beginning, I have presented 3 strategies to play PCCRC. I have enumerated entry rules and profit taking adjustments. I have named them so that there is no ambiguity:
1. Post-earnings jump.
2. High Fliers.
3. IV skew.
These are different scenarios with different entry rules that are very specific. This is important to avoid confusion because there is much overlapping among them.
Recently I introduced the use of Telecharts to scan for candidates to select Elliott patterns that are either bearish or bullish. I have incorporated the yet another PCCRC strategy:
4. The bearish PCCRC.
This has an entry modification compared to the other three: the long calls are OTM. This change is critical to generate a configuration which can easily benefit from a reduction in stock price.
It is critical that we are strictly specific and we follow the rules I have listed simply because this is what I have tested and with which I have obtained good results.
Davit and Rick have introduced strategies that do not rely on stock price T.A. indicators but rather on IV crush alone. They have and will specify specific rules. This is why we called it arbitrarily
5. Delta neutral PCCRC.
I hope that they will answer questions for those that, like them, want to avoid stock direction analyses.
Let's just be sure that we clearly state the name of each strategy when referring to each. I leave it up to Rick and Davit to name their strategies, and list their rules, perhaps they will indulgue us and give us some past and real life examples of success.
Juan thank you for responding to my comments
I will follow your advice (taking notes,testing and drawing my own conclusions)
I think I may be confused about the iv/sv ratio
When I looked at iv yesterday (Wednesday )it was 30
I have hv settings on Prophet set on period 2 number of bars 262
yesterdays reading for hv was 6.5
When I divided 30 by 6.5 I got 4.6
The conclusion I have come to is that either I am calculating the ratio incorrectly or that hv dropped during the day
I did notice that on Tuesday the HV was very high
Thank you for your help on this confusion
As I'm writing I see that AOC is down again today congratulations on what appears to be another nice trade
Juan,
I think there is confusion here. And it is coming from title of my article “Delta Neutral System”. In my article I showed how the trader can structure Delta Neutral Position by changing numbers of Puts on long side. Then I gave my vision of system where such position might work. I never said that Delta Neutral Systems exist yet; at least I don’t have strict guidelines as you have in your 4 systems. Hopefully Rick will help us to do couple steps toward new sideways system.
Could you please change my Article Title to “Structuring Delta Neutral PCCRC Position and Delta Neutral System Roadmap” so readers won’t be confused that there is a working and tested system described in this article?
Thanks,
Davit
Is there a way to increase the size of the graphics?
"click on image to enlarge" does not enlarge it very much. Can't it be bigger?
And this comment window is just a very tiny place that opens up in the upper left corner of the screen. It makes it very difficult to read the comments.
Hi mysticman
The resolution of the images is actually quite good (800x600 pics). Displaying it well will depend on the resolution of you screen, I think. However, to show it full size and scroll up/down and sideways in Internet explorer for windows, you do this:
1. Right click on the image. This gives you several options including "open link in new window", but you could even save it to your desktop and even e-mail it. Opening it in a photograph program and more. Essentially, the picture is YOURS.
2. Once you open it in a new window, you can accomodate the window to read the text in this page, and view the image at the same time.
3. Move your cursor arrow around the image and two icons will be superimposed to it. One on the top left corner would allow you to save, print or e-mail the chart.
4. Click on a second icon on the right bottom corner of the image. The icon represents an orange picture with blue arrows in each corner. This action will blow up the image to its intended size (800x800) and create scroll bars if the whole image does not fit your computer screen (or explorer window).
One alternative is:
Increase the resolution of your computer screen. IF the window is sufficiently large, Explorer will accomodate the image to the higher resolution of your screen. Here is what you do:
Start Menu>Control Panel>Appearance and Themes>Display>Settings>Screen Resolution>more.
Juan,
Thank you for explaning about the images, but sometimes the bottom line fact is that the images are too small to be seen clearly.
Yes these images at their expanded size are 800x600. This was the resolution I was running 15 years ago, and at that time they would fill the screen. 15 years ago 800x600 was barely above the standard VGA (it was called super VGA). However, now I and most users are running at the very least 1280x1024, so these images cover barely over half the screen. Most importantly, the important images of the risk graphs are taken from TOS, and the TOS screen is set to 1280x1024, so if you take an image of the TOS screen and reduce it way down to 800x600, you are losing much of its legibility. You might at least consider taking these shots at 1152x864. I will try to post some examples so you can see the difference.
Hi Mystiman.
Sorry to appear to be talking down to you, I assure you that was not my intention. Obviously, you know what you are talking about. However, I first have to rule out the simple, to deal with the complicated.
Obviously, if the 800x600 fits in most screens of today, then most people must be seeing what I see, and therefore I am satified that they can see what I am trying to show. Thus, they could reproduce in their own computers the graphs that I am posting in their own TOS or Platinum Platforms.
If folllows that I do not need to post large pictures that occupy large spaces in the servers of my web host. Fair enough?
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