Next Week Trade Plan: $70 Expected Move + Gravity Points
Volatility Expansion from last week's $62 Expected Move. I actually expect us to burst to the upside and then Fade for the rest of the week.
You can see the 'Event Risk' being priced in because of the G20, but on Monday we have a $47 Expected Move in one day alone. I marked this in Yellow on the screen.
Interestingly enough, Monday's $47 move brings us up into the next Gravity Point and where we've failed twice before at 2811.
How much would I trust the Expected Move? Less than usual. The market place is trading inefficiently. We just had two weeks in a row where we exploded outside of the expected move, both to the downside and last week to the upside.
How to look at the Expected Move:
It's a probability Distribution. Imagine the bell curve.
68.26% of the time price will remain inside of the Expected Move. So pretty much 7 out of 10 weeks. This gives you an edge of 20%, where 50% represents completely random (no edge).
95.4% of the time Price will remain within 2 Standard Deviations of the Expected Move.
99.74% of the time Price will remain within 3 Standard Deviations of the Expected Move.
Last week we had a 2.5 SD move to the upside in relation to what the Option Market had priced in. --> This means the marketplace is priced inefficiently.
The week prior we also broke outside of the Expected Move by about 2.5 Standard Deviations but to the downside.
These are extremely rare events and does not diminish the effectiveness of this strategy. I like to couple the Expected Move with Gravity Points, which is my suggestion for this week.
You can see the 'Event Risk' being priced in because of the G20, but on Monday we have a $47 Expected Move in one day alone. I marked this in Yellow on the screen.
Interestingly enough, Monday's $47 move brings us up into the next Gravity Point and where we've failed twice before at 2811.
How much would I trust the Expected Move? Less than usual. The market place is trading inefficiently. We just had two weeks in a row where we exploded outside of the expected move, both to the downside and last week to the upside.
How to look at the Expected Move:
It's a probability Distribution. Imagine the bell curve.
68.26% of the time price will remain inside of the Expected Move. So pretty much 7 out of 10 weeks. This gives you an edge of 20%, where 50% represents completely random (no edge).
95.4% of the time Price will remain within 2 Standard Deviations of the Expected Move.
99.74% of the time Price will remain within 3 Standard Deviations of the Expected Move.
Last week we had a 2.5 SD move to the upside in relation to what the Option Market had priced in. --> This means the marketplace is priced inefficiently.
The week prior we also broke outside of the Expected Move by about 2.5 Standard Deviations but to the downside.
These are extremely rare events and does not diminish the effectiveness of this strategy. I like to couple the Expected Move with Gravity Points, which is my suggestion for this week.
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That Gravity Point... Every time