The most recent Buy on the chart came on April 20th at 111.93. With GLD up above 115 today, that is about a 3% rise from inception of the trade. Taking a look at the option tables, a 3% rise in near-term at the money calls translates into a pro-forma rise in the option of well over 100%, i.e. from about $2.07 to between $4.00 and $4.85:
That's a healthy return for a ten-day period. But it has to be, as the trade has to make up for the previous whipsaw, where I suspect a loss on the option would be about 30%. Adding it all up, assuming that for any given two trades there is a 30% loss followed by a 100% gain, at the end of the year you are addicted to the trend models.
A lot of assumptions here, including pro-forma and/or hypothetical analysis. But the underlying trading paradigm is not assumed, it is real and based on this rear-view mirror option analysis, is a viable strategy going forward. Daily and Weekly models offer similar opportunity and I'll eventually get around to posting this same kind of analysis for those time frames.
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