The inverted head and shoulders pattern is a reversal pattern signaling a bottom as it occurs following a downtrend. Volume in the formation of the left shoulder is often higher than volume during the formation of the head, confirming that price is declining with less intensity, and perhaps soon will find support. As the right shoulder completes, volume often will increase with the resulting price advance back up toward the neckline. The buy signal is when price breaks above the neckline.
The call ratio backspread is a bullish strategy that involves selling 1 Call option and buying 2 Call options of the same underlying instrument and expiration date at a higher strike price. It is an unlimited profit, limited risk options trading strategy that is taken when the options trader thinks that the underlying stock will experience significant upside movement in the near term.
|CALL RATIO BACKSPREAD: Leg 1|
|Trading Symbol||LO G7|
|Option Type||1 CALL|
|CALL RATIO BACKSPREAD: Leg 2|
|Trading Symbol||LO G7|
|Option Type||2 CALLS|
|ADAPTIVE FUTURES STRATEGY|
|Trading Symbol||CL F7|
|Contract Expiry||Jan 2017|
The theoretical target of this strategy is a measured move up equal to the distance between the pattern’s low (Head) and the neckline at indicated by the arrows on the chart for a total of appx. 3.35 points.
If the price falls below the right shoulder where the stoploss is placed (44.55), the position is closed. The goal after entering the position is to adjust the stop-loss to the neckline of the pattern (45.85) as soon as the trade is working in your favor as the neckline usually acts as support once the pattern has been confirmed.
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