What AAPL's 5% Day Means

Given the stellar performance of the TradeWinds Market Guidance Service in September, I've been reluctant to fire too many short-range bullets this early in the month. As I've indicated in a recent writing titled On Any Given Monday, my preferred trading strategy consists of doing the homework diligently Monday through Thursday, looking for a lucrative opportunity to sell weekly options premium on Friday morning. But sometimes no matter how much you want to hold back, the market tempts you with an opportunity you just can't ignore. 

Two such opportunities presented themselves last week. First, in the chart below, AAPL is shown to have registered a "5 percent day" session back on September 26th. A session qualifies as a "5 percent day" when the entire day's session is established during the first 60 minutes of trading. On average, this occurs five percent of the time, hence the name. As far as trading this rare occurrence, simply wait for price to break out of the range in one direction or another, and then go with the flow. As shown in the chart, a couple of breakout attempts took place that failed to gather momentum, first on September 8th, and again on October 4th. Also note the selling pressure on September 30th, which failed to break the low end of the range. This constituted enough evidence to conclude that the march towards the $126.xx target has finally begun, per the second chart below.  

The second opportunity came utterly unexpected, and it showed its face on the chart of the daily ES Z6 (S&P December futures contract) an hour or so into Friday's session. Minutes earlier, I had tweeted to my subscribers my intent to stay on the sidelines for the rest of the day. I glanced again at the chart to confirm what I saw, and then I quickly dug up the SPY's weekly Open Interest chart I had generated earlier. Knowing full well that the lion's share of options expires worthless, I decided to go back on my initial decision to get my hands dirty by selling a generous quantity of SPY $214/$213 put spreads right at the moment the ES Z6 touched the triangle's lower trend line for the third time. A couple of hours later, we booked a nice profit and started our weekend early.


While this may sound boastful, I assure you not all trades work out in our favor. Just check out the real-time trade book and you'll quickly come to that same conclusion. While there are no guarantees in the stock market, I can tell you with confidence that a sound technical analysis foundation, coupled with enough options trading (and trade repair) know-how, will greatly increase your chances of staying in this game for a very long time. And don't forget to "keep it simple". Einstein once said: "everything should be as simple as it can be, but not simpler". Trading is certainly not an exception.

Trade Smart,

Peter Ghostine (@peterghostine)



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