June 2020: SPOT $180 – $185 Bull Call Spread | Mean Reversion Trading Using Options

June 2020: SPOT $180 – $185 Bull Call Spread

Stock

SPOT

Trade Structure

$180 - $185 Bull Call Spread

Trade Date

06/11/2020

Price Paid

$233

Expiration Days

07/17/2020

THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.

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Trade Rationale

If you have read my book, you will notice that I have gone into detail about how I do my mean reversion trades. But the stock market is a multi-dimensional being and if you don't take advantage of all opportunities it gives, you will miss out on a lot of profits. If you are a paying member, you already know how I trade post-earnings by using something called "continuation trades", "support/resistance" trades, and "squeeze trades". This trade is based on Support/Resistance. With SPOT, we had done a really nice post-earnings $145-$150 Bull Call Spread which we closed on 5/20 for an 83% ROI in 20 days. After that, SPOT shot up to almost $200 very quickly. And I was monitoring it for a second opportunity. I missed the first pull back on 5/28, then another on 6/5 and finally got another shot at it yesterday. Notice, every time it bounces from that invisible support line, the stronger that support becomes.

SPOT_180_185_BullCallSpread_Open | Mean Reversion Trading Using Options

Trade Selection Criteria

Overall market movement

Today was a very interesting day. It felt like the bottom really fell out. We had a huge 1800 point drop in a single day. This definitely meets our parameters for overall market movement as detailed in my book.

CHECK

No Earnings or Significant News

Earnings were just announced on 4/29 and are behind us

CHECK

Bollinger Bands outside Keltner Channels

This trade is based on support/resistance. BB/KCs don’t apply here. Please see trade rationale above.

INDETERMINATE

RSI Analysis

This trade is based on support/resistance. BB/KCs don’t apply here. Please see trade rationale above.

INDETERMINATE

ADX Analysis

This trade is based on support/resistance. BB/KCs don’t apply here. Please see trade rationale above.

INDETERMINATE

Trade Analysis

This was a picture perfect trade and gave us a 108% ROI in 2 short weeks.

SPOT_180_185_BullCallSpread_Close | Mean Reversion Trading Using Options

Trade Outcome

WINNER

Profit/Loss

$252

Beginning Account Balance

$4,300

Ending Account Balance

$4600

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To follow along the strategies we use in the $25K challenge, we recommend that you get the strategy book which explains the whys and wherefores of our method. Get it here=> https://amzn.to/2MUOCE5

6 Comments

Stéphane Anengue on June 18, 2020 at 10:07 am

it is to late to take a call for spot challenge ?

Nishant on June 18, 2020 at 4:14 pm
Yes, SPOT has gone up too high. You can always ask me questions directly on Discord app.
Reply

Peter Tocco on June 19, 2020 at 5:52 am

I read your book and use your indicators daily, however it seems that these indicators are designed to spot reversals, and reversals are not that common. So I’m working on patience. Your model assumes that natural market forces are at work, that balance is restored when a stock is over or under extended. However we see that fed stimulus keeps pumping the market higher, overcoming the natural reversion to the mean. Does this mean another bubble burst is coming?

Nishant on June 19, 2020 at 7:34 am
I have explained the main strategy that I use for my trading in the book. Yes, it does require patience. However, since the stock market is such a dynamic environment, I do put on a few other types of trades too and am working on an update for my book to include these. Also, it is virtually impossible to predict what is coming next, so instead of trying to predict what is coming, I try to react to price movement instead. These are the other types of trades I do when mean-reversion trades are hard to come by
- Post-earnings trades
- Squeeze trades
- Support/Resistance trades
Reply
- tulu karuq on July 7, 2020 at 10:05 am
  I read your book, and I very much like the simplicity of your approach. I agree it is hard to predict what comes next. However, there are quantities, such as the Hurst exponent, that indicate whether an asset is in a mean-reversion regime or trending regime. Do you use such measures in order to determine which strategy to use?
  Reply
  - Nishant on July 7, 2020 at 1:39 pm
    I use technical analysis, support/resistance etc to determine mean reversion.
    Reply