Oct 2021: ARKK $111 – $112 Bull Call Spread | Mean Reversion Trading Using Options

Oct 2021: ARKK $111 – $112 Bull Call Spread

Stock

ARKK

Trade Structure

$111-$112 Call Spread

Trade Date

10/08/2021

Price Paid

$58

Expiration Days

11/05/2021

COMING OUT OF A CORRECTION

During a correction, 2-4 weeks of trades will get absolutely wiped out, but we save so much cash with this trading method that using it strategically will save you from these events which come unannounced and without warnings. We had literally 4 weeks of back to back winners which has not only helped me recover from the “paper damage” from the correction but I just hit a new all time high of $24,000 in my account so I am just $1000 away from wrapping up this challenge.

AllGreen | Mean Reversion Trading Using Options

THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.

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Trade Rationale

Cathy Wood’s ARKK has been beaten down badly this year and stands at a -11% return YTD. It broke support earlier this year at 115 and if it shoots past 115, it is setting up for a nice reversal. However, anything below 115 is going to be tricky. Watch this trade carefully and if you see ARKK dipping below 109 anytime during this trade’s window, you would want to close this trade out as the next stop is most likely 102 for ARKK.

ARKK_111_112_CallSpreadOpen | Mean Reversion Trading Using Options

Trade Selection Criteria

Overall market movement

Massive drop in the markets and we are nearing the end of a correction.

CHECK

No Earnings or Significant News

N/A – This is an ETF

CHECK

Bollinger Bands outside Keltner Channels

Bollinger bands are only slightly outside Keltner Channels but we are at the bottom of our trading range here.

CHECK

RSI Analysis

RSI was turning up when I took the trade. Although, It dipped again a few days later

CHECK

ADX Analysis

DI- is turning down indicating a possible reversal

CHECK

Trade Analysis

This trade is actually a great tip for how to dip your toes in the water during corrections. The nice thing about taking a $1 wide spread when there is uncertainty in the market is that you can risk as low as $50 per spread and if things continue to go against you, it won’t break the bank. 4 of these trades can add up to approx. $250 which is what we usually risk per trade during normal market conditions. These are not a substitute for my normal $5 wide spreads as they can rack up commissions per contract if you take too many contracts.