Stock Option Backtester Micron Technology (NYSE:MU) : The Exact Bearish Trigger
Date Published: 2019-02-02
DisclaimerThe results here are provided for general informational purposes from the CMLviz Trade Machine Stock Option Backtester as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.
PrefaceRecently we wrote on other technical set-ups. We look into both bullish and bearish triggers for one goal:
Build a portfolio of option set-ups, diversified not just by ticker, but by strategy. It's in this process that we expose the times were short bursts of risk exposure have been profitable in the past.
A portfolio of the same strategy in several stocks isn't really diversified, it's just the same risk taken over and over again.
* The Bullish Trigger in Advanced Micro Devices.
* The Bearish Trigger in Alibaba.
* The Bearish Trigger in Nvidia.
* The Bullish Trigger in Nvidia.
* The Bearish Trigger in Netflix.
* The Exact Bullish Trigger in Amazon, Even During a Bear Market.
Use Trade Machine to set alerts for all the triggers you find -- let it do the work rather than you having to stare at the screen all day. Emails (or texts) when triggers fire -- Trade Machine watches the market for you.
Micron is one of the most exposed companies to the Chinese economy and the semi-conductor industry is in a state of volatility. Today we look at when a bearish trigger has worked.
The Short-term Bearish Option Trade in MicronBefore we dig into the details, the trigger looks like this -- here are three triggers in the last 3-months for Micron:
We will examine the outcome of going long an out-of-the-money (using 40 delta to identify the strike price) put, in options that are the closest to 21-days from expiration. But we follow three rules:
* Never Trade Earnings
Let's not worry about stock direction or earnings, let's try to find a back-test that benefits from volatility. Here it is, first, we enter the long put.
That means the trigger waits until two days after earnings to even start a scan and closes any positions two-days before earnings -- that is the definition of "never trade earnings" for Trade Machine -- a four-day window around the event that is "hands off."
* Use a technical trigger to start the trade, if and only if these specific items are met. As of this writing, the conditions are not satisfied.
Wait until the day that the stock price crosses below the 10-day moving average and the stock is already below the 200-day moving average. Here is a nice simple image of the technical requirement:
* Finally, we set a limit:
* Use a 20% limit
At the end of each day, the back-tester checks to see if the long put is up 20%. If it is, it closes the position. You will notice there is no stop loss -- this trade has, historically, seen large drawdowns only to bounce back over the 21-day period into a winner. We note the risk in having no stop loss.
RESULTS FROM THE OPTION BACKTESTERHere are the results over the last five-years in Micron:
The mechanics of the TradeMachine® Stock Option Backtester are that it uses end of day prices for every back-test entry and exit (every trigger).
Setting ExpectationsWhile this strategy had an overall return of 946%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 25.8%.
Checking the Moving AverageYou can check moving averages for MU on the Pivot Points tab on www.CMLviz.com.
MORE RESULTSHere are the results over the last six-months in Micron:
As the stock has dipped 3% over the last 6-months, the bearish trigger with options shows a 326% return.
WHAT HAPPENED: Option BacktesterFind the set-ups, build the portfolio of alerts, let Trade Machine scan the market for you. That's it.
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You should read the Characteristics and Risks of Standardized Options.
Past performance is not an indication of future results.
Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment.
Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.
Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.