5/13

Strategy Overview: Using 5/13 EMA Crossover for Selling Options

How the 5/13 EMA Crossover Works

• 5 EMA and 13 EMA: The 5-period EMA is a short-term moving average, reacting quickly to price changes, while the 13-period EMA is a medium-term average, capturing slightly longer trends.

• Bullish Signal: When the 5 EMA crosses above the 13 EMA, it suggests a potential bullish trend, which could be a signal for selling put options (betting on the price staying above a strike price).

• Bearish Signal: When the 5 EMA crosses below the 13 EMA, it indicates a potential bearish trend, which could be a signal for selling call options (betting on the price staying below a strike price).

1. Selling Put Options (Bullish Bias)

• Setup: Look for the 5 EMA crossing above the 13 EMA, indicating a bullish trend. Confirm the price is above the TRAMA line for added conviction.

• Action: Sell out-of-the-money (OTM) put options with a strike price below the current market price, ideally at a support level or where you expect the price to hold.

• Rationale: In a bullish trend, the likelihood of the option expiring worthless (allowing you to keep the premium) increases.

2. Selling Call Options (Bearish Bias)

• Setup: Look for the 5 EMA crossing below the 13 EMA, signaling a bearish trend. Confirm the price is below the TRAMA line for stronger confirmation.

• Action: Sell OTM call options with a strike price above the current market price, ideally near a resistance level.

• Rationale: In a bearish trend, the option is more likely to expire worthless, allowing you to pocket the premium.

Key Considerations for Selling Options with 5/13 EMA

Timeframe:

• The 5/13 EMA crossover is a short- to medium-term trend indicator, so it’s best suited for options with expirations of 1-4 weeks.

• Use shorter timeframes (e.g., 5-minute or 15-minute charts) for intraday trading or longer timeframes (e.g., daily charts) for swing trading.

Combining with TRAMA

• Use the TRAMA line as a dynamic support/resistance to select strike prices. For example:

  • For selling puts, choose a strike price below the TRAMA line, as it may act as support.

  • For selling calls, choose a strike price above the TRAMA line, as it may act as resistance.

• If the price is far from the TRAMA line, it may indicate overextension, so consider waiting for a pullback to the TRAMA line before selling options to avoid entering at trend extremes.

Example Strategy Workflow

• Chart Setup: On a daily chart, plot the 5 EMA, 13 EMA, and TRAMA line.

• Bullish Trade:

  1. Wait for the 5 EMA to cross above the 13 EMA.

  2. Confirm the price is above the TRAMA line and trending upward (e.g., higher highs/lows).

  3. Sell an OTM put option (e.g., 5-10% below current price) with 1-2 weeks to expiration.

  4. Monitor for a reversal (5 EMA crossing below 13 EMA or price breaking below TRAMA) to close or roll the position.

• Bearish Trade:

  1. Wait for the 5 EMA to cross below the 13 EMA.

  2. Confirm the price is below the TRAMA line and trending downward.

  3. Sell an OTM call option (e.g., 5-10% above current price).

  4. Monitor for a bullish crossover or price breaking above TRAMA to exit.

• Diversify: Don’t rely solely on EMAs and TRAMA. Incorporate indicators like RSI, MACD, or Bollinger Bands for confluence.

*****Disclaimer: I'm not some Wall Street shaman, so don’t pawn your grandma’s heirlooms based on my chatter! Consult a real-deal financial sensei before you trade*****