Trigger Levels

The Trigger Levels are expected price levels calculated on the implied volatility of Call and Put Options with delta 25 with a maturity of 30 days rolling.

From the 30-day weighted Call and Put volatility values, we get the daily volatilities and then, multiplied by the real time price of the underlying or it’s Volume Weighted Average Price (VWAP), as a result we have the expected daily Up and Down excursion.

The Up and Down excursion just calculated, that is the expected movement of the underlying, corresponds to level 4 of the Trigger Levels window. Since it is generally quite large, we divide it by 3 equidistant intermediate price levels.

In addition, both the Up and Down excursion are doubled and again we divided the space by 3 intermediate levels equidistant.

In total, therefore, there are 16 price levels, 8 Up and 8 Down, which include a price range between Current Price -2 times the Down excursion and Current Price +2 times the Up excursion.

Playing with these Trigger levels can provide various ideas for use, the most used method is to evaluate them as supports or resistances and act accordingly.

As an example: working directly on the underlying, you can place STOP orders on intermediate levels and then increase the size of contracts at each level following the trend and always place STOP orders on opposite levels to open positions in the other direction. With this system combined with good money management you get a trend follow trading system.

Another example, this time contrarian and with options, can consists in opening of synthetic positions Short if the underlying rises and Long if the underlying falls, starting from level 2, doubling the size at each level up to level 4. Starting from level 5 you will have to enter hedging using the Futures in the opposite direction to the synthetic, with quantity 2 for levels 5, 6 and 7, and quantity 1 for level 8.

Or other more precautionary systems, perhaps using Vertical Spreads at each level of intervention, cover them with the equivalent amount of futures, or even with other ideas that you will develop in learning the system, since we have a calculation that gives us the expected movement. of the underlying on that day with a probability of 1 standard deviation.