Proof of Concept

This will be a pretty long post so bear with me.

Today after the market closed:

The plan was to wait till Friday before getting rid of MU, but at this point it doesn't matter so I'll sell it tomorrow. The combined cost of the MU and VZ call was $283.96. Even with the loss of the MU call, the combined worth is now $348.00 ( a 22.5% gain in two weeks). At least the $10 it's now worth will cover the commission costs. The picture you're looking at shows two things.

One: Don't expect a win for every call you make.
Two: Your winnings should cover your losses if the system is followed.

Let me explain what just happened.

This shows what day I bought the options ( "Date Acquired" column ):

Now compare the following two pictures that show the stocks on the days I bought them.

If you spotted a difference then you already see why the MU and VZ calls turned out the way they did.

This system hinges on two things. One is what's called the Williams %R indicator and the other is the MACD Divergence. Don't ask me what that means because I don't know but the point is they both serve as a way to measure momentum. What I've done is combined the two.

For VZ, notice that the Williams %R is above that red line and the green MACD line is above the red one.

For MU, notice that the Williams %R is just about to drop below the red line and the green MACD line is below the red one. 

That is the difference between the outcome of the two. Momentum upward was on the VZ call but not the MU call.

Now because I had limited funds in my actual account, I went ahead and made some purchases in a virtual one based on the same concept.

Here are the current results.

And here's when they were purchased. (The VZ was the same day as the one from above so you already know that story)

Here's what the stock charts looked like on the purchase dates. I didn't draw the line but you can just look at the bold date at the bottom. You can click to enlarge the pictures. And YES. Three of them were purchased today.

Notice how EBAY was behaving just like VZ?
ARCP on the other hand looks like it's about to become like MU. So in truth, buying it was a bad idea. It's probably held up because it will be releasing earnings soon and stocks typically run up till right before an earnings announcement.

What about JBLU and CLF? You can barely see the separation between the green and red MACD line for CLF, but know that the green is above the red. The Williams %R is also above the red line. So that should continue to run up. JBLU looks similar except the Williams %R just dropped below the red line. No need to panic though since it just happened today. If it stays under for three more days, then we need to be out of the position. I don't think that will happen though because JBLU just released its earnings and it matched expectations. But we'll be sticking to the rules.

And what of LUV? Again. Green MACD line is clearly above the red one and the Williams %R is also above so expect a good outcome.

And there's a quick overview of the strategy. Again, I'll be getting rid of MU tomorrow. Probably VZ too since tomorrow makes two weeks. Mathematically, it's better to gain 20% every two weeks and reinvest all funds than to gain 40% in four weeks and reinvest funds. New opportunities are ready almost every day. Let's forge ahead!