This Indicator Predicts Market Tops With Incredible Accuracy (Consistent Over Many Years)

over the last few years there has been one indicator that has consistently predicted Market tops with surprising accuracy in this video we not only reveal what that indicator is but more importantly how to use it correctly to structure great trades off of it we'll even show you a case study of how you could have potentially made a 200 percent return and tripled a twenty thousand dollar account in just one year from this one indicator I'm Mike bellafuri and we are a long-standing proprietary trading firm in New York City with numerous highly successful Traders almost all of whom started their trading careers with SMB we hope you agree you found the right place to potentially grow your trading account [Music] thank you hi I'm Seth freiberg and I'm the head trait of SMB capitals options trading desk here in Manhattan and as many of you probably know the CBOE volatility index which is commonly known as the vix is kind of like a thermometer of how much volatility the options Market believes there will be in the stock market over the next month or so based on the pricing of index options tied to the S P 500 when the vix goes up it means the options Market is forecasting increased price volatility in the market both up and down by the way over the next month and when the vix goes down the options Market is implying that there's going to be less volatility anticipated in the market over the next month fortunately it's not really necessary to understand the nuances of how the vix is calculated in order to understand a great option strategy which uses the vix as a way of helping us to identify and profit from near-term tops in the market and so let's take a look at a chart of the vix so over the last 12 months and as you can see it topped out pretty consistently at the 35 to 37 area and began to bottom out pretty consistently again as soon as it got into the 17 to 20 area and what we realized was that the vix dropping into that 17 to 20 area seemed to be a pretty good indicator that the market was beginning to find a short-term top and that a sell-off would not be far off into the future if the vix in fact dropped into that 70 to 20 Level and we also realized that a certain option strategy was going to be ideal for profiting from this thesis and that's because this strategy is very forgiving and doesn't draw down much if the market doesn't immediately sell off once it fell into the 17 to 20 range but rather as long as that sell-off ultimately took place over the next couple months the trade was going to work out beautifully now in order to explain the option strategy that we're works so beautifully with the vix as an indicator we need to make sure that everyone watching this video understands how call options on indexes work and so we're going to do a really quick review of them and then we'll jump right back into the details of the strategy and so the best way to understand a call option on an index is to think of it as a bet call options pay off if an index closes above what's known as the strike price of the option on the day that the option expires if the index does close above that price on expiration date the call buyer gets 100 per point that the market closes above that call strike price if the index doesn't close above the call strike price the option expires worthless and the call seller just Pockets the premium he was paid with no further obligations so for example if an index closed at 40 32 then the 4 000 call would pay off thirty two hundred dollars as you can see from the calculation because the index closed 32 points above the strike price of the call which was four thousand however however the 4075 call would expire worthless is the index didn't close above 40.75 so the call seller just Pockets the premium so those are the basics of call options on indexes okay so with that said let's head back to the first date in the last 12 months where the vix dropped below 20 and as you can see that date was March 28 2022 when the vix closed at 19.63 just below 20 for the first time in the last 12 months now if we look at the S P 500 Index also known as the SPX index you'll see that it closed at 45.75 that day in what most people would call pretty bullish looking chart actually and so let's say on that day we went out about two months to the May 20 options expiration and we went ahead and sold five of the 4575 calls and we bought for protection five of the 4625 calls expiring on the same day and so when we we did that selling calls at the price at the index is trading and buying calls above that for protection in the same expiration chain when we do that basic structure we're entering into what options Traders refer to as an at the money call Credit spread which is actually a bearish position and you'll see why in a minute now let's first break down what has happened here from a cash flow standpoint as you can see we sold five of the 4575 calls for 115.95 and because each option represents one hundred dollars per Point beyond the strike price you multiply that by 100 and you sold five of them so multiplying all them all together you'll receive fifty seven thousand nine hundred seventy five dollars in cash into your account but then you'll turn right around and pay 86.55 for the five calls 50 points away up at 46.25 and for those you'll pay a total using the same kind of calculation of 43 275 which is results in net cash flow initially of fourteen thousand seven hundred dollars and you're broker by the way will require you to have at least ten thousand three hundred dollars in your account at that point which is also the trades worst case scenario moving to the day this trade expires as you can see the market actually very quickly started to sell off almost immediately after we put the trade on and continued downward more than 600 points by May 20 the day the options expired and so now valuing our trade is easy because we start with the cash flow we first received for selling the call Credit spread and then it's obvious that both the 4575 and 4625 calls expired worthless because both are literally hundreds of points above the final price of SPX on expiration day and so they don't pay off anything and they just expire with no value leaving the trade with all of the cash flow he originally received at 14 700 okay so the indicator was correct and the vix falling below 20 did indeed Mark the beginning of a downtrend in the market now let's move to the next time in the last 12 months where the vix fell below 20 which was on August 10 2022 when it closed for the first time since March below 20 that day closing at 1974 in fact and that day the SPX closed at 42-10 and so again we'll go out a few months to the October expiration and as we did before we'll sell five calls right at the closing price of SPX at 4210 and we'll buy five calls 50 points above that at 42.60 to form a 50 point wide call Credit spread which again is a bearish position as we just showed you and as you can see from the same kind of calculation as we did in the last trade in this case we collected 13 850 and in this case your broker would require a little more eleven thousand one fifty in your account to initiate this trade so if we move to the data these options in October expire we can see that the SPX again closed significantly down at 37.52 and so again both options expire worthless and again you just have pocketed the 13850 you collected initially the third time in the last 12 months at the vix closed below 20 was on December 1st 2022 as you can see and on that day SPX closed at 4076 and so again we enter an at the money call Credit spread expecting a bearish move with the five short calls at 40.75 and the five long calls at 41.25 50 points above just as we did before and as you can see we collected thirteen thousand eight seventy five and your broker will require this time slightly less 11 125 in capital and so it should come as no surprise to you by now that on the day that these options expire January 20th SPX had again sold off this time down to 39 972 which again gave us a full win of 13 875 because in this case the SPX expired more than 100 points below the strike prices of both call options now in the last 12 months the vix dropped below 20 yet another time actually in mid-January of 2023 but we wouldn't know the outcome of that trade quite yet although it would currently be profitable by over three thousand dollars had you actually entered on that day and so as you can see accumulating the profits from all of the completed trades over the last three years would have more than tripled a twenty thousand dollar account which would have exceeded an account value of over sixty thousand dollars over the last 12 months utilizing the vix below 20 as an indicator of a market downturn and so what I'd like you to take away from today's video is that professional Traders have lots of indicators that they watch in the vix falling below 20 has been a pretty reliable indicator that the market is overbought what and a bearish trade would be in order the indicators rarely work immediately by the way but if a Pro Trader with some options knowledge and some patience isn't the wheel he'll be able to put together a bearish strategy just like the call Credit spread that we used in today's lesson to leverage that opportunity with occasionally incredible results as you see in this case Okay as you just saw you can use certain indicators to potentially make huge returns in any given year but these signals may not happen often what if you want to increase your consistent monthly income from the markets to find out how click the video appearing on your screen right now to discover how you can triple your income from covered calls with a simple tweak

Channel: SMB Capital

Views: 62,677

Keywords: stock market, day trading, smb capital, trading, investing, markets, wall street, stock trading, options trading, options income, economics, finance, vix options strategy, how to trade the VIX, vix index strategy, using the vix for trading, how to trade with the vix, vix trading options, options strategies for beginners, at the money options strategy, at the money options

Id: YHW68Ff9Z6M

Length: 10min 49sec (649 seconds)

Published: Thu Mar 02 2023