VWAP Makes This The Best Friday Ever

vwap

My friend Kenny Glick introduced me to the Volume Weighted Average Price (VWAP). And I’m a pretty big fan of it… on Fridays. And ONLY on Fridays. To Wikipedia:

“In finance, the volume-weighted average price (VWAP) is the ratio of the value of a security or financial asset traded to the total volume of transactions during a trading session. It is a measure of the average trading price for the period.”

Blah… blah… blah. Okay. Okay. I learned how to trade VWAP based entirely on the one-minute measurement. And I have an account over at TradingView.

The story goes that you buy the stock when the stock moves above the one-minute VWAP. And if it falls under it… you sell. But what if you’re really good at trading options? Well… we end up having a day like… This.

What If I Bought the SPY?

The SPDR S&P 500 ETF (SPY) is the ETF that tracks the performance of the S&P 500. As I said yesterday, the S&P 500 has a clear path to 4,300… and the SPY to 430. 

If I bought the SPY at the point that it broke higher than VWAP at $422.14. And – by the end of the day – trading the SPY up to $426.74, I’d have made a whopping… $4.60 per share. 

But magic can occur if I use options and speculate around the “In the Money” call that expired TODAY, Friday, August 12, 2022. Instead of buying 100 shares of SPY for $42,414… I could buy the $424 call for today once it crosses the VWAP. 

Today’s $424 call hit a bottom today at $0.22. It closed the day at $2.73. That is a 1,818% return… in less than seven hours… based on the bottom. But at the VWAP cross, it was about $0.56. Still… 387% trading with way less money and the same return that the 100 shares would offer. 

Trading on Friday

There’s a reason why it’s great to trade this way on a Friday with a focus on the expiration happening… TODAY. There is no time value left in the contract. You are trading entirely on momentum… and entirely around price. 

If you were to buy that contract exactly when the SPY or any other stock crosses over the VWAP, you could take some profits if the stock moves higher. Remember – there’s no way to forecast if this will rally or slump. The markets are random. But if it falls under the VWAP, you sell the contract and wait for another move higher. 

VWAP Goes Both Ways

VWAP isn’t just about stocks moving higher. If stocks drop under VWAP, you can short them… or you can purchase puts. But I prefer to focus on one-direction POSITIVE moves because they are easier to manage.

Pretty soon, you’ll have an opportunity to meet my friend Kenny and dive deeper into how we trade the SPY, individual sectors, and more using this strategy. Even better… you can speculate with this sort of trade too. I love to use the in-the-money call… but if you speculate on higher prices than where it breaks… the upside can be immense. 

Today the SPY finished the day just above $427. The $426 call today hit a low of $0.04. FOUR CENTS. It closed the day at $0.78 (a 1,815% gain). But the HIGH of the day… was $1.21. That’s a 2,925% gain… in a DAY. VWAP… it’s how to trade on a Friday with options.

Market Momentum

Okay, so momentum is extremely GREEN, but we are now in overbought conditions. We have to be VERY cautious and tighten stops along the way. If we look at today’s closing chart, we find ourselves at the highest level for Relative Strength Index on the SPY since… November 2021. 

RSI, MFI, and MACD are insanely stretched out. My money is on a 430 hit… and a possible run as high as 435. But my dark horse is that the existing home sales create deep economic worries. Bring on September because I cannot wait to bet against this market… 

It is so ridiculous… I couldn’t be more prepared for the next move down. Until then… momentum is running higher, and I’m not euphoric. I’m just playing the game like every other hand of poker I’ve played with my momentum measurement since 2015.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

Related Articles