Trusting Your Method

This is going to be a lengthy one tonight. Here's what I'm covering tonight:

1. Walmart (WMT) contract exit and review
2. Vistra Corp (VST) review second day and the 80% win I didn't take
3. Average True Range (ATR)
4. Prospects for tomorrow

Let's jump right in.

Walmart Contract Exit

I mentioned yesterday I had opened call options expiring on May 1 for a strike price of $130. I bought these contracts for $1.61 originally on April 20. I decided I'd keep the contracts up until today (April 21) but not further. Let's look at the performance including today's.

In the above chart we can observed the following:

• I've kept the uptrend I observed on April 17 before entering any calls on April 20 (yellow dotted line).
• We can also see that Walmart has closed above the 20 and 200MA.
• Walmart has closed above the resistance of $127.32 I established over the last two days.
• The last two days the RSI has remained in an overbought position, closing today at 76.06

So, I panic sold half of my contracts at $1.58 not realizing I had only sold half. Later on, I realized I still had half in contract and sold at $1.77. In short, I didn't lose any money from my initial investment, which is honestly a good thing. The tiny profit I made is nothing to boast about, but I am definitely bragging about not losing any capital on this trade. I think, while the read was fine, Walmart is not the most volatile stock regularly, which explains the small return on investment (ROI). I'm not mad at this trade, it continued to solidify my approach and that's plenty.

Vistra (VST) And the 80% Win I Didn't Take

Two days ago (Sunday night) I performed my usual analysis to see which stocks to consider for my trades on Monday. I expressed in that post that I was also going to take an analysis for a bear trade, where instead of investing on the price of a stock going up, I'd call for it to go down. Meaning, I'd be monitoring the behavior of Vistra if I were selling a put option. As mentioned then, the contract for a strike price of $157 was at $3.85. The same contract, expiring on May 1st reached a value of $7.05 at some point during the day. Let's take a look at the performance observed:

• Again, I've kept the downtrend I observed on April 17 and it's been downhill since.
• We've seen the RSI dropped consistently, and while it has not officially stayed in oversold for long, it's kissed it slightly.
• VST has closed below the 20-200MA, which is a significant from April 17

Back to the win I didn't take. As mentioned, this was strictly for analysis purposes to understand if my method would also work from a bear angle. Let's remember that when entering a contract for $3.85 this is done for 100 contracts, this means that I would've paid $385 for one contract. Considering its performance today, the price for that contract would have reached a total value of $705 giving me a profit of $320. An 80% return in one day really is pretty insane, I would've been jumping from joy perhaps. Though I almost am knowing my method works!

Average True Range (ATR)

The more I've been doing this for the past week and this week, I started wondering how far of a strike price is too far? I began to think on whether there is something that can tell me how much of a change in price I should aim for, and later on today I discovered what the AVT is, which tells me exactly that, how much a stock moves on average. While this is an indicator in most trading or charting tools, I will use it for the two stocks I've discussed here Walmart and Vistra.

Vistra

In the above, I've zoomed in and selected the ATR for 8 days. This takes the average change in price for the last 8 days. When looking at the ATR we see that it is 2.00 – when we look at the actual price above we see that from April 10 to April 21 (8 days) it is actually $2.08 in change so it's accurate. The number of course changes depending on the number of days we were to select for this indicator, but the way I've been targeting these contracts has been for 10-15 days.

Let's now look at Walmart

This one is a bit trickier to tell, and I know this to be true as well as I experienced it first hand. While the change is less than $1 I had a hard time locating the exact change in the ATR indicator of $0.38 vs my sketching of $0.70. However, the two can agree that it is below $1. In all honesty, knowing this, I can see why I didn't lose any profit and why it wasn't going to be life-changing profit.

Either way, the ATV makes sense now, though of course we can always expect curveballs to alter the ATV, in another post we can consider how a standard division can be applied to this. For now, this is enough.

Tomorrow's Prospects

First, let's look at the indexes, the sectors, and the VIX performance today to drill down.

In the above, we see that it's the first day all the indexes close below its previous day, while it isn't drastic, it explains the red sectors on the left. At the same time, we can see that VIX closed slightly higher and closed at 19.32 which is a little higher than April 20.

With that said, I will look at real estate XLRE (Real Estate) for a put and possibly a call for XLT (Technology).

XLE Possible Put

In the above, I've sketched the tiny downtrend. Similar to my previous analysis, it may seem like a bit of a drag, but we see that SPG just came out of a consistent uptrend, this is the first time in a month we start to see a downtrend. Now, the ATR points out an average change of $1.06 per day. As I don't plan to hold contracts for more than two days, a put of strike price $195 expiring on May 15 is currently $1.80, I am planning to take this after the first 30-40 mins of the day tomorrow April 22. If the trend reverses, then I will not.

Call time for PLTR in XLK

This one seems a bit interesting, but I am willing to take the call expiring on May 1 for a strike price of $152 with a contract price of $2.72. Why I think this is a good call? healthy RSI, and the closing price is slightly below the 20-200MA giving it room to cross them. Additionally, the daily ATR is ~$2 and today's close was $145.97 meaning a $4 increase in two days seems feasible.

As usual, I will not open any contracts in the first 30-45 mins. This rule must be respected. If there is any reversal, then I'll refrain from trading.

Today was an interesting day seeing the method work for both a call and mostly for a put. It definitely made me believe more in the method I've develop and continue to sharpen. It is only week 2 of trying it out, but hopefully with the use of ATR now, I can hit the nail on the head more consistently.

Let's see what tomorrow awaits us!