Strategies

High-Probability, Mean-Reversion Options and Stock-Based Strategies

Introduction

This options (and stock-based) strategy uses my proprietary High-Probability, Mean-Reversion Model to take advantage of short-term technical extremes. I am proud to be one of the only options-based newsletters to offer recommendations based on technical extremes in the market. This options strategy requires patience coupled with a disciplined approach to formulating recommendations to my loyal newsletter subscribers. This strategy will make 1 to 5 recommendations a month. However, there will be some months when no recommendations are made. The key to this strategy is patience. Waiting for the appropriate scenario to recommend trades with a high probability of success is what makes this strategy a success.

My High-Probability, Mean-Reversion Options and Stock-Based Strategy is based around the High-Probability, Mean-Reversion indicator that I post each and every trading day on my Options Blog plus the Wilder RSI (2). My goal is to keep the strategy as simple as possible to show that elaborate investment techniques are not needed in order to outperform the market on an annual basis.

Vaughn Okumura, founder of the now defunct vtoreport, outlined RSI Wilder (5), on his site. He stated that it was one of his favorite short-term strategies. He kept a record on the site, and his gains from 2/21/97 through 2/03/06 were in excess of 384%. He achieved these remarkable gains by only trading the underlying QQQQ, without options.

The following criteria are the basis of my High-Probability, Mean-Reversion Strategy. Once an ETF hits a “very overbought” or “very oversold” state I will then go to the other indicators I use, namely the Wilder RSI (2) to verify that a trade should indeed be placed. If you wish to learn more about the strategy please subscribe to my newsletter service. I offer a 30-day Free Trial, so really, what do you have to lose.

Very overbought – greater than or = to 85.0
Overbought – greater than or = to 70.0
Neutral – between 30.0 and 70.0
Oversold – less than or = to 30.0
Very oversold – less than or equal to 20.0

Doesn’t get much simpler than that, right?

As part of each newsletter subscription I will issue a real-time trade alert each time a trade is placed in the strategy.

ETFs used in Short-Term, High-Probability, Mean Reversion

The ETFs that I list daily on my options blog will be the underlying’s of choice for my High-Probability, Mean-Reversion Options Strategy.

Benchmark ETFs

S&P 500 (SPY)
Dow Jones (DIA)
Russell 2000 (IWM)
NASDAQ 100 (QQQQ)

Sector ETFs

Biotech (IBB)
Consumer Discretionary (XLY)
Health Care (XLV)
Financial (XLF)
Energy (XLE)
Gold Miners (GDX)
Industrial (XLI)

Materials (XLB)
Real Estate (IYR)
Retail (RTH)
Semiconductor (SMH)
United States Oil Fund (USO)
Utilities (XLU)

International ETFs

Brazil (EWZ)
China 25 (FXI)
EAFE (EFA)
South Korea (EWY)

Commodity ETFs

Gold (GLD)

Ultra Extremes

Small Cap Bear 3x (TZA)
Small-Cap Bull 3x (TNA)
UltraLong QQQQ (QLD)
Ultra Long S&P 500 (SSO)
Ultra Short S&P 500 (SDS)
UltraShort 20+ Treasury (TBT)

Share and Enjoy:

Patience

"Don't take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don't be an impatient trader." -Jesse Livermore

Patience is the key ingredient to the success of my strategies and forcing a trade is, in most cases, detrimental to any strategy. My strategies requires patience coupled with a disciplined approach. Waiting for the appropriate scenario to recommend trades with a high probability of success is what makes my options strategies successful.
Risk-Management

Losing trades are a definite. It is how they are managed over the long-term that proves the success of a strategy and I think I have shown over the past few years that I have managed the strategy appropriately. The performance speaks for itself. Capital preservation is one of the key elements of my strategies and I insist on a disciplined, risk-management approach so that the my strategies will have the best chance at long-term success.
Sound Strategy

I am a realist. I realize there is no holy grail in trading. However, one thing I do know for certain is that I have found several unique, and concrete strategies that make the world of sense to me and I trade them to make serious money over the long-term. Furthermore, I realize that the less I trade, the better my strategies will perform over the long run: And the long run is what matters. This is what makes my strategies unique and so far, successful.

Strategies

Patience

Risk-Management

Sound Strategy