Another Month - Another Trading System Play Flagged

So far it's almost been like clockwork with this new trading system.  I mentioned that it averaged about a trade a month, and so far it's done that almost on the nose. Since this is a mean reversion system, the recent downdraft has flagged buys across the board. The averaging part of that statement should be paid attention to. Sometimes when the market is dive bombing, the system will flag a couple of days in a row as opportunities. Then in straight up mode, none for months. So I would consider this luck, so far. It could flag a trade or two this month.

So back to the trade at hand, SPY, QQQQ, IWM and DIA are all flagged. I reviewed all four and the credits on SPY and IWM were the best even though they weren't necessarily the most volatile. In fact, I would say QQQQ is probably the most volatile of the bunch but it yielded the worst credit. The second thing to consider is that the SPY NOV trade is still on, so do I want to expose myself to additional SPY risk? Well, IWM and SPY are pretty tightly correlated and the SPY has a little less volatility, so this becomes a pretty tough call. My plan is to take the IWM trade today and maybe the SPY trade tomorrow if we continue lower. Here's how they look.

 First IWM.

iwm-vertical-spread-dec-2009.png (43.70 kb)

And now SPY

spy-vertical-spread-dec-2009.png (45.00 kb)

Hopefully you're getting used to seeing the P/L structure of verticals. Each of these yield about the same credit and the distance between strikes is $2.00, which puts about $1.67 at risk.

Now the next trick is getting filled. The futures are pointing up slightly this morning, so a gap up may put these credits out of reach, but hopefully the market will rattle around enough today to fill. Things are changing rapdily as volatility has come back.

Will keep you up to date on the progress.

DISCLAIMER: This is not a recommendation to anyone to buy or sell.  I'm not a professional and I don't have much sense, so following me is hazardous to your finanical health.  The point of the post is to share ideas and hopefully get some feedback so that we can all improve our understanding of the subject.