Using Bollinger Bands Breakouts

Bollinger Bands are a technical indicator that allows users to compare volatility and relative price levels over a period of time. For simplicity, it consists of two major bands designed to encompass the majority of a security’s price action. If and when prices move outside the upper band and/or lower lower band, it signals the the market has reach a relative extreme and will move BACK INSIDE the bands shortly.

Looking at a chart of the SPX daily, you can see that we have a breakout of the lower band yesterday. Every time this has happened in the past the markets rallied. My guess is that this time will not be different. Loading up on short puts and/or calls would be very profitable over the next couple weeks.