August 22, 2017

Several ETFs in Short-Term Extremes

Most of the ETFs I follow for the High-Probability, Mean-Reversion indicator have pushed into an overbought to very overbought state. But, what is most interesting is the extreme overbought readings over the shortest of time frames I follow. For instance, readings in IWM and SPY are in the high 90’s…an extreme we don’t often see in the benchmark ETFs.

As a result, we are finding more and more opportunities for bear call spreads. The only downside is the low implied volatility., but one way to combat low volatility, particularly if you are expecting a quick fade of the current trend is to take use a bear call spread with a lower probability of success, say in the 60-70 range. This will allow you to bring in more premium and if a move to the downside happens to occur quickly, you can often take profits off the table equal to that of a far out-of-the-money bear call spread. This is the type of trade I discuss in great detail for my High-Probability, Mean-Reversion strategy. The other wonderful aspect of using this type of strategy is that your risk is defined at all times. So, knowing that your probability is a little lower than the typical 85%, you can adjust your risk accordingly.

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  • TONY68

    Thank you…good info a trader can actually use. Out of all your combined sentiment indicators, which one do you think has most reliable signals?