A New, Non-Directional, Volatility-Based approach to Options Trading. The compression methodology by Don
Fishback compares a stock to its short and long term moving averages. It is a method he employs daily to find
securities that would benefit from a non-directional options play (e.g. spreads). It is inspired by the work of
Daryl Guppy.
ODDS Compression System looks to find opportunities when a stock's price have converged into a very narrow
range. This indicates the stock has become tightly wound and compressed -- like a coiled spring.
The methods used are very selective and designed to find only the best stocks to take advantage of a
non-directional volatility trade.
Traders looking to take advantage of this as a trading opportunity would use option strategies designed to make
money as the stock breaks out of this narrow range. Options Traders should look for options purchases. Because
the direction is unknown using this methodology on its own, neutral strategies, such as an at-the-money straddle
purchase are well suited.
A straddle purchase, or long straddle, is the simultaneous purchase of a put and a call, with the same strike
price and same expiration month. At-the-money means that the option's strike price and the current price of the
asset are about the same.
Customers looking to take advantage of this trade should make sure the options have a reasonable bid/ask
spread, have at least 500 contracts open interest - OR- trade at least 50 contracts per day. It is also
important to look for straddles that are inexpensive and have a statistical edge.