Posted in Options Trading
By: Tom Gentile on November 12th, 2021 • 3 mins read
All respect to Dicken’s as this article may not end up as one of the great literary classics of our (or any) time, but hey, if it helps you make some money maybe you’ll forgive me.
I often get asked does Money Calendar work for or find bearish patterns? And the answer is it absolutely does.
The concern is it doesn’t find as many compared to the bullish patterns. Large in part because the markets have been in an overall bull market the past 10-years. And since Money Calendar looks back 10-years there are many more bullish patterns in comparison to bearish.
Look at this week as an example of the ratio of bullish to bearish patterns each day:
Take a look at the top candidates for today. You will see only one bearish pattern / tendency on the stock salesforce.com (NASDAQ: CRM).
I still analyze the data and extrapolate what I see to ascertain a prospective target price on the stock (or ETF) if it just moves its avg. profit (price) amount again this time.
After doing so, I will look at two different option scenarios based on and around the Money Calendar data.
CRM Money Calendar Date
CRM has moved lower 9 of the past 10 years.
The last and only time in the past 10 years it did NTO move lower is 9 years back, This gives me the indication the momentum in the more recent years is more solid than if it went against its tendency with a last lower in the past year or two.
The average profit or price move over these past 10 years is 4.62-points ($4.62).
The power meter is 146. The size of the matter means the avg. profit in the most recent few years is larger than its cumulative 10 years. Just as important is it is a positive power meter. If it were a negative number we wouldn’t even deal with it.
The end date of the pattern is December 17th. The process is to find a pure directional option trade with an expiration date just past the end date, or in this case, an expiration that is the same as the end date.
For CRM we would look at an option trade with an expiration of December 17, 2021.
Here is a look at two different trade ideas like has been done in the past.
First: This is a Long-Put option trade where one could Buy to Open CRM December 17, 2021, $300 Put for a limit of $10.48 per contract.
The problem for some may be the cost for even one contract would be $1,048.
To keep the cost of a trade down on CRM one can instead consider a Put Debit Spread.
Second: Consider a Put Debit Spread where one would Buy to Open a CRM Dec. 17, 2021, $300/$310 Put Debit Spread at a Net Debit of $5.00 or $500 per contract.
For max profitability we need CRM below the sold strike of $300 at expiration. Assignment and execution should happen making for a potential ROI of 100%.
With the stock at basically $303, if CRM at least drops its average of $4.62 it would make for a target price of $298.38, which is below the target/sold strike price – which is a good thing for this trade.