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1990issue C011-8

Stack option odds after point-and-figure signals

A currency option is treated as a derivative, so a usable overlay is described as requiring a prior directional view on the cash currency. Point-and-figure records demand as X columns and supply as O columns, and option-premium-analysis begins only after that cash-market view is set.

  • A currency option is treated as a derivative, so a usable overlay is described as requiring a prior directional view on the cash currency rather than starting from the option itself.
  • Point-and-figure records demand as X columns and supply as O columns, omits volume and time, and changes direction only after a three-box reversal.
  • Selecting an option because the premium looks cheap or expensive, or because a covered write offers a high annualized yield, is described as skipping the underlying-price step.
  • If entry, exit, strike, and expiration are treated as independent 70 percent tasks, stacked-task-probability puts the joint chance at 24 percent before premium above intrinsic value, commissions, and the bid-ask spread.
Entries in this reading3 entries
Current trackPoint and figure chart37 readingsOption premium analysis47 readingsDouble top and bottom68 readings

Start from the cash currency

A currency option is treated as a derivative, so a usable overlay is described as requiring a prior directional view on the cash currency rather than starting from the option itself.

Currency direction is attributed to a supply and demand imbalance. Excess demand lifts price, excess supply lowers it, and balance leaves it unchanged.

Record supply and demand without time or volume

Point-and-figure construction records demand as X columns and supply as O columns and does not use volume or time.

The chart changes direction only after a three-box reversal. Smaller moves are classified as day-to-day noise.

The described box scale is one-half point below 20, one point from 20 through 100, and two points above 100.

Recognize the double top and bottom

A double top or bottom is a beginner point-and-figure pattern in which price retests a prior column extreme and a break through that extreme is read as a directional signal.

Double top and bottom formations, together with triple top and bottom formations, are listed among the eight basic patterns a beginner is expected to recognize.

Do not start from the premium

Selecting an option mainly because its premium looks cheap or expensive, or because a covered write offers a high annualized yield, is described as skipping the underlying-price step.

Option-premium-analysis is the step that comes only after the cash-market view is set. Strike, expiry, delta, premium above intrinsic value, and bid-ask friction are scored as extra variables that change the joint odds of the overlay.

Multiply the independent tasks

Stacked-task-probability multiplies the chance of getting each independent task right. Entry, exit, strike, and expiration are the tasks used to estimate the chance the whole construction works.

If entry and exit are treated as independent tasks each at 70 percent, the combined chance of completing both is 49 percent. Adding independent strike and expiration tasks at the same 70 percent lowers the joint chance to 24 percent.

Read delta as a tracking fraction

A delta-heuristic maps five points out-of-the-money to a one-quarter delta, at-the-money to one-half, and five points in-the-money to three-quarters, so the option is not said to track the cash market one-for-one until it is deep in-the-money.

Premium above intrinsic value, commissions, and the bid-ask spread are listed as further reductions in the chance that the full option construction works.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
6 of 30 in the Point and figure chart track
19911-7 pp.Next on Point and figure chartConstructing a point-and-figure downtrend-breakPoint-and-figure posts a box only after price covers the full box-size, and it opens a new column only after the reversal-size is filled.
All readings on this track · 30 readings
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  2. 1989Reversal count as the clock on point-and-figure charts
  3. 1989Point-and-figure setup and session-average entry windows
  4. 1989Two-scale point-and-figure trendlines and stop placement
  5. 1989Adjusted net asset value, tighter reversals, and written stops on a fund point-and-figure chart
  6. 1990Stack option odds after point-and-figure signals
  7. 1991Constructing a point-and-figure downtrend-break
  8. 1991Constructing point-and-figure box and reversal charts
  9. 1991Constructing a close-tested one-two ladder on a point-and-figure chart
  10. 1992Point-and-figure, breadth, and volume as falsifiable hypotheses
  11. 1992Three-gate stock selection with ranks and point and figure
  12. 1993Constructing combined stochastics and point-and-figure relative strength
  13. 1997Point-and-figure box scale and reversal construction
  14. 2000Cotton weekly point-and-figure: late-stage decline, named weekly close
  15. 2000Constructing point-and-figure charts for support, resistance, and breakouts
  16. 2001Swiss franc: seasonal permission and a weekly point-and-figure breakout
  17. 2001Constructing point-and-figure boxes and reversals
  18. 2002Point-and-figure construction: box, live column, and three-box reversal
  19. 2003E-mini point-and-figure box-size and a descending-triangle breakout
  20. 2003A reconstruction critique of point-and-figure daytrading
  21. 2004Point-and-figure column moving-average crossovers
  22. 2005Box-series transforms for trend and channel work
  23. 2006Constructing bearish point-and-figure support breaks
  24. 2008Point-and-figure forex breakouts and triangles
  25. 2012From tactile charts to written trade rules
  26. 2013Combine a Point and figure chart and Moving-average crossover inside one System optimization procedure
  27. 2015Point-and-figure time and volume limits are conventions to test
  28. 2016Measurement-first critique of indicator defaults
  29. 2017Point-and-figure construction, reversals, and column-based overlays
  30. 2019A 2019 charting case as a three-check trend classroom
By fieldOptions and volatility171 readingsBy year199092 readings
All 37 readings tagged Point and figure chart
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