1993issue C091-9
Listed-option timing as three separable clocks
The documented options procedure treats expected price, direction, and duration as distinct inputs. A variance envelope only marks relatively high or low price. A dual commodity-channel-index cross only timestamps confirmation when price is already at an outer band. Expiration and strike stay on a separate desk.
- A 20-session moving average with a two-standard-deviation band marks relatively high or low price. It does not issue a standalone buy or sell order.
- Timing confirmation is a 72-session commodity channel index plotted with a 5-session smooth of that same series. Their cross is eligible only while price already sits at an outer band.
- The options version takes the first valid band-plus-cross signal rather than waiting for a later trendline break, because remaining life is treated as the main erosion risk.
- After confirmation that a pullback is ending, the procedure buys the matching directional option. After confirmation that the swing itself is ending, it closes that long and writes the same option type. Expiration is chosen outside the two indicators.
Three assessments of the underlying
The documented options procedure treats three assessments of the underlying as distinct inputs: the expected price, the direction of that move, and how long the move is expected to take.
Editorial reading: listed-option timing is easiest to teach as three separable clocks. A variance envelope only locates price. A dual commodity-channel-index cross only timestamps confirmation. A decay and strike desk answers duration and valuation questions those two indicators are not allowed to answer.
A variance envelope only locates price
The variance envelope is a 20-session moving average with a two-standard-deviation band. It is used to mark relatively high or low price, not to issue standalone buy or sell orders.
Bollinger Bands, in this workflow, are a non-centered moving-average envelope set a stated number of standard deviations from average price. They function as a relative high-or-low map, not as a standalone order.
A dual-line cross timestamps confirmation
Timing confirmation is a 72-session commodity channel index plotted with a 5-session smooth of that same series, so a cross of the two lines is the timing event.
The commodity channel index is a scaled comparison of price location with mean deviation. Here a long lookback is plotted beside a short smooth of itself so their cross is the timing event.
A commodity-channel-index zero cross of a given length is described as coinciding with price crossing its matching moving average. The raw-versus-smoothed cross is presented as occurring earlier than that moving-average event. That earlier stamp is the dual-line cross: the event in which the raw commodity channel index and its short smooth exchange position.
Crosses are eligible only at a band extreme
A candidate setup requires price at an outer band plus a dual-line commodity-channel-index cross.
The two indicators are distinguished statistically. The bands compare price with a moving average to form a variance envelope. The commodity channel index compares a price difference with mean deviation. Oscillator crosses are used only when price is already at a band extreme.
That last rule is the band-extreme filter. Oscillator crosses are eligible only while price is already at an outer variance envelope, which is how frequent oscillator chatter is reduced.
The options version takes the first valid signal
A later break of the recent price trendline is listed as further confirmation. The options version of the procedure takes the first valid signal rather than waiting for that break, because remaining life is treated as the main erosion risk.
Buy the pullback option, then write the same type
After band-plus-dual-index confirmation that a pullback is ending, the procedure buys the matching directional option. After confirmation that the swing itself is ending, it closes that long and writes the same option type.
That sequence is the documented option spread: buy the matching call or put when a pullback is confirmed ending, then close that long and write the same option type when the swing itself is confirmed ending.
Expiration stays off the two indicator clocks
Expiration is chosen outside the two indicators. The 20-session variance window is used to estimate the next cyclical low. At least 30 extra days are added so a long option can sit on the flatter part of time-premium decay. That extra calendar is the expiration buffer.
Purchased options are specified with at least six weeks remaining. Written options are kept shorter but not under about 30 days, and they are often near two months.
Strike convention is a separate valuation step. Purchases are specified just in the money or at the money. Writes are specified out of the money but nearest that at-the-money level.
Other rules this pairing is meant to replace
The band-plus-dual-index combination is contrasted with a centered-channel method that requires projecting bands forward. It is also contrasted with a commodity-channel-index rule that waits for overbought or oversold extremes, which can miss pullbacks that end without those extremes.
Alignment on the illustrated cash-index series
On the illustrated cash-index series beginning 8 January 1993, dual-line commodity-channel-index crosses lined up with the numbered outer-band turning points marked on the companion price chart.
All readings on this track · 39 readings
- 1982Three gates on a 1982 pork-belly short
- 1982Scale-free Commodity Channel Index construction
- 1986Constructing a commodity channel index and a regression price channel
- 1987Constructing scaled OHLC matrices for study overlays
- 1987Constructing the commodity channel, average directional, and relative strength indexes on a shared cycle scale
- 1992Eleven-bar commodity channel index from typical price and mean deviation
- 1992Evaluating Commodity Channel Index breakout versus range rules
- 1992Evaluating breakout and CCI rules as complete mechanical procedures
- 1993Constructing stochastic, RSI and CCI inputs for forecasts
- 1993Nested centered channels with a commodity channel index confirmation gate
- 1993Listed-option timing as three separable clocks
- 1994Constructing an eleven-period commodity channel index
- 1994Confirming Elliott wave turns with channels and the commodity channel index
- 1995Commodity Channel Index band rules lag zero-line timing
- 1995Building the commodity channel index from typical price
- 1995Staged reversal rules with commodity channel index and average channels
- 1995Commodity channel index construction from typical price to a smoothed zero line
- 2001Reader tests for unfinished lookback oscillators
- 2002Constructing the commodity channel index from typical price
- 2003Breadth-filtered commodity channel index entry and exit rules
- 2003Constructing the Commodity Channel Index from typical price and scaled deviation
- 2003A shallow, poorly participated advance is an unconfirmed trend
- 2003CCI and RSI parameter defaults as scaling conventions
- 2003A cost and capital audit of a Commodity Channel Index trade engine
- 2003Commodity channel index peak divergence as an exit after twin patterns
- 2004Constructing the Commodity Channel Index from typical price
- 2004Constructing the Commodity Channel Index from typical price and mean deviation
- 2006Building custom indicators from the Commodity Channel Index, a least squares moving average and a rule-based entry
- 2012Confirming breakouts and retracements with CCI, ADX, and averages
- 2012Stacking oscillator lookbacks into a heatmap mosaic
- 2013Constructing a consensus and volatility-normalized value oscillator
- 2013Walk-forward system evaluation with a commodity channel index and chandelier exits
- 2014Dual detrended oscillators and dual Bollinger Band channels
- 2014RSI, CCI, and moving-average trend-filter construction
- 2014Dual RSI, a moving average, and CCI as a confirmation stack
- 2017Constructing dual-average cross and channel-index filters
- 2018Treat CAM as a classification layer before confirmation becomes an entry
- 2018Four-state slope labels gated by a moving average and a commodity channel index
- 2018Deviation-Scaled Moving Average construction from a two-bar difference