Click on the chart to enlarge it.
The quarter-day chart of Amazon (98 minutes), generated a ZeroHit as of the first bar of the day on 7/20 (bar ending at 9:08 am MST and shown as point A in first sub-graph), with no entry (based upon the Ocean entry rules) for the next two 98 minute bars.
Upon completion of the 2nd bar after the initial ZeroHit another ZeroHit occurred (bar ending 12:24 pm MST and shown as point B in first sub-graph).
At this time, prices were trading just under their NMA (shown as circled arrow above prices), where resistance should be expected.
Also, the NMM ROC momentum tool was pegged well above its upper boundary, thus setting up the familiar “slingshot” formation, one of our favorite confirmatory patterns (point C with up arrow in bottom sub-graph).
Again, just for fun and not really relevant to our immediate story, notice the same ZeroHit setups on July 13th and 14th that were discussed above for the higher time frame charts. These signals were good for almost 5 points (10%) in a 4 day period. When multiple timeframe Ocean signals line up it pays to honor their message!
From an analysis of these “top down” conditions (from broad market high timeframes through intra-day analysis of the underlying stock), everything looks good.
As we've already seen, a short position in Amazon stock alone was an excellent trade. However, when everything lines up and you have another instrument that allows you to leverage the play (like options), why not commit a small percentage of our trading capital to it?
Of course, only a small percentage of total available funds should be dedicated to an options campaign. I suggest no more than 2% of the total trading account. However, the nice thing about purchasing a put or call is that at least the potential loss is limited to your investment.
Now that the pre-conditions to consider an option play are in place, lets turn our attention to the option contract itself:
(This is the end of Part 5. Go to Part 6.)
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