06 Jun Technical Patterns for Selling Strangles
I'm a visual person. Admittedly. I love to see shapes and patterns in life and try to figure out the underlying meaning or infer what the future will look like if this pattern continues, stops, pauses etc. I suppose because I trade for a living that I should be just a numbers guy, but this just isn't the case. Nevertheless, I believe that trading is about finding your special niche - your happy place, or whatever it may be - and forming a regimen around this base.
Technical analysis definitely has its place in the markets, though many fundamentalist would disagree. The stock market is a beautiful thing, in that it really doesn't care about people's opinions of it. It just simply moves along, swinging and churning day after day without any regard. So what does this mean for your trading? Well, in a round-about way, I'm trying to tell you to be your own boss, listen to what makes sense to you, and trade to your heart's content.
During the summer months, I notice one pattern that keeps reoccurring on the momentum stocks. That is the "high-low, churn" type pattern, which lends itself nicely to selling weekly strangles. Usually, I like to find momentum stocks that are on people's radar - either they are in the news, the favorite of the day, or for whatever reason, people think that despite their lofty valuations, they are all going to the moon, which pumps up their option premium nicely.
Here's a sample of the pattern:
The above is a 30-min chart of SCTY. You can see that the stock hit a recent high of $55.90, then a recent low of $46.11, then started to base out in a tighter channel. This is the "high-low-churn" pattern that I like for selling weekly strangles. The green line and red line are where I will be selling calls and puts, respectively. Right now, this strangle combo is bringing in .55, in 7 days, which on 30 contracts equals about $1650.00. Not a whole lot of money, but the idea is that you can do this again and again during the slow summer months for some nice income.
Now, the question becomes: What do you do if the price gets out of the range? Well, the answer is to adjust early and adjust often. This is something I cover in-depth in my video course at OptionBoost.com