Tuesday, June 30, 2015

Binary Options S&P 500, Exit

Times are New York time.

S&P 500 (Nadex:US500) 10:03 a.m. entry: Long the >2055 strike for a $64.00 debit with the index price at $2066.30.

Expired 4:15 P.M. Exit: For no credit with the index price at $2,063.12.

The chart below shows the Nadex strike of indicative 2055 positioned at the equivalent index market price of $2,046.45. The Nadex indicative is the average of the 25 most recent trades on the exchange.

Although the Nadex indicative at exit was 2054.73, or 27 cents below the strike, the index price was above the imputed strike at entry, signifying a narrowing of the gap between the index price and the Nadex indicative price.

Click on chart to enlarge.
SPX at 4:15 p.m., 5 days 5-minute bars
The Elliott wave analysis shows wave 4 {-1} working out as a flat, or what I sometimes call a sidewinder. Flats are notorious sucker plays because they are by definition a series of whipsaws.

The complete of the flat will mark the end of wave 4 {-1} and the beginning of a downtrending wave 5 {-1}, the final leg of wave A to the downside.

I won't trade wave 4 {-1} any further but will trade wave 5 {-1}. A persistent move below $2,056.32, the low point of the flat so far, would likely signify the beginning of wave 5 {-1}. However, it is ambiguous, and any breakout play must be treated with caution.

Lessons Learned: Today's trade was a loss, and I've spent the time after the close trying to figure out how to remeidate it.

I think my entry was proper. It would have improved had it had a smaller risk in relation to the reward.

Also, the reversal shortly after 2 p.m. at the same level as the previous highest high of wave 4 {-1} was a tip-off that the pattern was most likely a flat. I would have done better to have exited at that point, but I failed to pick up on it.

Going forward, I shall aim for something closer to a 30:70 risk reward ratio, close to opposite of what I did today (which was 64:36). The cost of that structuring will be greater odds of the price taking out my strike, so it will call for greater nimbleness in exiting.

The strikes in Nadex are $3 apart, and one strike removed from the present indicative price is a good rule of thumb for near-even odds of success. That's what I shall aim for in my next trade, once wave 5 {-1} to the downside begins.

-- Tim Bovee, Portland, Oregon, June 30, 2015


My draft day-trading rules can be read here.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, InvestopediaStockCharts and Wikipedia.

See my post "Chart Analysis: Nomenclature" for an explanation of my method for labeling waves on the chart.


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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Based on a work at www.timbovee.com.Tss s ss'ss

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