The case for swing trading, options or stocks

 

As we said before, sectors and individual stocks, with thousands of companies to search for, with limited resources, it’s a bit of a problem

 

We follow 700 + companies with the following characteristics

Av Daily Volume > 1,000,000

Market Cap > 5 billion

Stock price > 10

So we like to measure different parameters

 

60% of those companies ended down 12/2, however the SP500 ended up

37% on nov 29

47% on nov 27

56% on nov 26

28% on nov 25

 

56% have negative momentum at close compared with 49% at Fridays close

Only 15% are trading at the close with negative slope

 

Let’s see the oil industry

85% ended down on 12/2

19% on 11/29

53% on 11/27

59% on 11/26

88% on 11/25

 

I ask myself, if this is a short term pattern for shorting stocks on that group, well most of the time all groups move in tandem so if the general market is not going down, its better to stay away from shorting, but, the oil industry is weaker than the general market, or is it the end of a short term down pattern for that group, if that’s the case the stronger stocks will be going up

 

Then you have the case for individual stocks, if it is a weak group, is better to short one or two stocks or the industry’s ETF. With a swing strategy for 2 or 3 days tops your benefits are limited unless you trade a lot of money.

 

For example, you short 100 shares of a 20 dollar stock, it is a 2,000 dollars trade,

case the stock goes down 1% in 2 days, 20 dollars profit

case the stock reverse and closed up 1% in two days, you lose 1% or 20 dollars

 

Now let’s make an hypothetical case with options

Let’s assume

20 exercise price

20 current stock price

18% implied volatility

4.27% risk free interest rate

Time to Expiration 16 days

The put option is trading at 28 cents, again this is all hypothetical using a option valuation model, reality can be like that or not, others factors go into option valuation, also you need a liquid contract

 

Two days later the stock is trading at 19.80

The model value for the put contract is 37 cents, that is 33% profit

 

To be continued………..