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accepted: author's own research on Bollinger squeeze breakouts with actionable grading system, though no specific asset identified
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Bollinger Bands get tight, stock breaks out, you buy calls. We've all done it. I wanted to know how often that actually works.
I looked at 399 squeezes across 50 S&P 500 stocks over 3 years. Without any filtering, the breakout went the right direction 49.6% of the time. Coin flip.
You're paying premium to guess.
So I built a scoring system that grades each squeeze A through D based on the conditions around it. The scoring adjusts per stock a tight squeeze on NVDA looks different from one on KO.
Results:
A-grade: 71.4% went the right way (n=14)
B-grade: 53.7% (n=121)
C-grade: 48.0% (n=150)
D-grade: 44.7% (n=114)
The best squeezes and the worst ones are 27 percentage points apart. That's the difference between a trade worth taking and one where you're just donating premium.
A+B combined (n=135) hit 55.6%. C+D combined (n=264) came in at 46.6% below a coin flip before theta even starts eating.
A-grade only had 14 events so that exact number needs more data. But each step from A to D loses accuracy consistently, and B-grade with 121 events is a solid sample.
Tested on daily bars, S&P 500 only. Haven't combined this with IV rank yet.
Do you play squeeze breakouts? What do you look at before deciding calls vs puts?