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Contrarian Call Credit Spread Hedge Trade
Call Credit Spread Strategy for SPX | Wednesdays
This SPX options trading research study finds an edge by combining Alpha Crunching's WTR or Weekly Triumph Rate with simple moving averages for trading at the money call credit spreads with 7 days to expiration on Wednesdays.
Alpha Crunching considers each day of the week of having its own characteristics and seasonality. This research takes trades on Wednesday afternoon if the following criteria is met.
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Alpha Crunching's WTR or Weekly Triumph Rate is updated each weekend before the trading week begins and shows the historical percentage of times SPX has closed higher 7 days later over the past two months. We also calculate the average number of SPX points the market has closed higher for each day of the week.
This SPX call credit spread trade is considered a contrarian trade as we are looking for certain bullish conditions to be in place before taking the trade. The idea here is that when certain bullish conditions are in place, we will also be in some other bullish put credit spreads at the same time which means this trade can help hedge any current open positions.
The bullish conditions we're looking for start with the WTR Historical Line chart. For Wednesdays, if the WTR Average Points are increasing from the previous week, a 7DTE call credit spread is a potential trade candidate for the week.
The other bullish conditions that needs to be met at the time of the trade entry is that SPX needs to be above the 5sma on the daily chart about 15m before the close that Wednesday before taking this trade. If SPX is trading below its 5sma, the trade would be skipped.
This strategy sells a slightly out of the money call credit spread with 7DTE (days to expiration) with the goal of receiving at least a $2.00 credit for a 5 point wide spread. This creates a 3:2 risk reward or better for the put credit spread. The short strike of this spread is about a Delta 40 for reference.
This SPX options strategy held the spread to expiration and ran a 72% win rate from January 2023 through September 2024.
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