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Options Traders and Bollinger Bands

Volatility is an option traders friend, so it should be no surprise that Bollinger Bands give you an edge. Buy options when volatility is low and sell when it is high; this seems simple enough, but we continue to see traders get it wrong. While this post isn’t an in-depth look at options trading, we will point to a few tools that will give you the edge you seek.

What follows is a typical workflow when considering options trades.

Bollinger Band Scan – An Edge for Options Traders

The Bollinger Band TTM Squeeze scan from my book, looks for Bollinger Bands entering the Keltner Channel. This action creates the first part of a set up, where volatility collapses. The second part triggers an entry when Bollinger Bands exit the Keltner Channel. The condition presented is what John Carter calls the “TTM Squeeze.”

The current scan produced the results below:

BBands Scan 01-25-2018
MTW and NAV both look good, while some of the other candidates triggered longs yesterday. FAST, which reported earnings recently has traded higher on block size volume, indicating institutions at work. HDS is in the same industry group and could be in play today, with earnings the first week of March.

Navistar International NAV manufactures and sells commercial and military trucks, diesel engines, school and commercial buses, and service parts for trucks and diesel engines worldwide. The company reports quarterly March 20.

Technically speaking, NAV is about to trigger a “confirmation” signal. A break above 46.47 and 47.47 would signal a follow through, while Bollinger Bands expand rapidly. The TTM Squeeze signal  will likely trigger today. The stock carries a beta of 2.71.

NAV Daily BBands Scan 01-25-2018

The stock produced a fairly shallow basing pattern, consolidation from the previous run-up following the June lows. RSI suggests there is more to come and MACD shows bulls control the momentum. If volume continues to increase, more traders will notice.

NAV Measured Move (MM) is approximately 8 (+/-) points, giving us a target of roughly 55.00 once the stock breaks above bag holders at 47.47.

NAV IV Rank options traders

Options traders would be remiss if they overlook IV Rank, which currently indicates a buying opportunity at 6%. We would usually buy options here and add on a breakout. We would also give ourselves enough time for the trade to work. We typically look to sell options when IV Rank is above 50%.

While we might take a trade on NAV, it all depends on the markets. If the indices are higher and industrial sector is green today, that would solve part of our criteria for trading in a top down approach.

Futures are Higher

Have a great day,


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