August 17, 2017

How I Define a High Probability of Success Trade

Volatility as seen through the Ipath S&P 500 Vix Short-term Futures (VIX) hit a new low today. Inherently VXX is biased towards the downside due to contango, but just looking at the three month chart you can see the push lower has been swift enough to push the RSI (5) into a “very oversold” state.

VXX Chart

The market itself has been teetering at all-time highs and the timing couldn’t be better for the “sell in May” believers.

The “worst six months” as named by The Stock Trader’s Almanac officially began today. When coupled with an area of strong overhead resistance the odds favor the bears…and I plan on playing it that way. Of course, as always, I’m going to use a high-probability trade so that even if I’m wrong about my directional bias I still have a 1-2 std. deviation margin of error. Not bad when you consider my potential return is anywhere from 7-15%, depending on how high I want my probability of success over the next 30 days. I differ from many other options strategists who stock around the 1 standard deviation mark or a 68% probability of success. I often push my probability of success around the 80%+ mark. However, if I’m selling puts, depending on the underlying, I will go 90%+. Ah, the advantages of naked options.

options blog

If you are a believer in a statistical approach towards investing please do not hesitate to try my options strategies. I use simple mean-reversion coupled with probabilities for each and every trade. Give it a try, it’s free for 30 days.

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  • bill allman

    From prospect – where can I see a 6 mos. trade-by
    -trade track record?

  • acrowder

    Bill, thanks for the comment. If you wish to email me I can provide you with a six month track record of the HP-MR strategy. Thanks again for your interest.

  • bill allman

    yes wouldmlike to see 6 mo. track record