I’ve been working recently a lot on my options trading system based on technical indicators and finally I’ve came to the last and and only possible variant. I have already backtested it on various ETFs and stocks and I can say for sure that 70% of signals are early and profitable. However I discovered that it most of all suits to the ETFs like QQQQ, SPY, IWM. In other words, the less volatile is the underlying the more efficient the signals are. Nevertheless I determined the best parameters for the stocks and presented them in the study which you can see on the chart. The signal is formed when the indicator crosses on of the lines and it means the reversal for the current trend (count the previous 5 bars. to determine the trend, Such way is the most effective one). So as we can see from the current chart the 5-day trend is TOTALLY bullish. Not a single red candlestick! The trend began at the 08.29.08 and lasts even until today. However, we can also see that the bar crossed the line and that’s the indication of a coming reversal. In other words, the bearish trend is coming. I think it would be short-term, in fact very short-term, about one week or 10 days. The most effective bearish option strategy in this case i think is Oct 08 Bear Put Spread 32.5$-27.5$ which can be bought for 140$ (1 contract for each leg) and the maximum profit potential here is 360$. To be more exact the profit/risk factor equals to 2.6, which is very good.
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