How to Use RSI and Covered Call to Boost Income


April 12, 2021

As part of this post, we’ll take a deeper look at the SP 500 Futures Renko chart, technical analysis, and a simple covered call strategy. For additional information on technical analysis using Renko charts, please see this post, which describes the techniques in further depth.

Renko Chart Technical Analysis

The RSI on the S&P 500 Futures daily Renko chart below is 94, and the price is 4121.The market seems to be overheating. We don’t know when the SP 500 futures will correct. The stock may be primed for further gains given its strong upward momentum and lack of obvious upside barriers.

SP 500 Futures Daily Renko chart and RSI

Advantages of RSI

  • It sends alerts to detect prospective market buying and selling opportunities. Contrary to popular belief, the relative strength index (RSI) is not utilized as the sole indicator to trigger trading activity.
  • It simplifies chart analysis. Even inexperienced traders can use the RSI indicator. Due to the indicator’s well-defined overbought and oversold levels, it is still accurate and insightful enough for experienced traders and investors alike.

Disadvantages of RSI

  • The relative strength index (RSI) is not the best tool for trading confirmation or execution. When it comes to identifying potential trading opportunities, the relative strength index (RSI) is immensely helpful. This is because the RSI is very good at identifying overbought and oversold conditions. That doesn’t mean you should sell when the market is overbought. To buy when the market is oversold.
  • Price reversals can occur at any time and are unpredictable. After the reversal, the market may remain overbought or oversold for days or weeks.
  • RSI may lose accuracy during periods of strong trending. When there is a strong trend, the RSI can still be useful. It should be used in conjunction with other indicators to be most effective.

Renko Chart Settings

Using a fixed Renko box size rather than the 14-day ATR method may be more suitable for beginners. Trend lines and horizontal support and resistance levels will remain unchanged whether you look at charts today or a week from now.

Take into consideration the various frames for Renko charts that you are comfortable with. The closest thing to a tick chart is a 1-minute base chart, which some people prefer. Using multiple timeframes to analyze charts usually improves results.

The Renko chart timeframe should match your trading style and risk appetite. Using multiple timeframe charts for technical analysis is a good rule of thumb. This approach helps you gain perspective on both short- and long-term strategies.

For more information on technical analysis using Renko charts, please see this blog post, which goes into greater detail about the techniques used in the analysis.

Covered Call Strategy

Based on technical analysis and probability, I opened a covered call position today. The SP 500 futures have gained over 150 points since the previous all-time high. The RSI is also overbought. So, I paid $10 for SDS and sold the June 18 $10.00 call option for $0.55. EFT SDS is a bearish strategy. It gains value as the S & P 500 falls. The SDS ProShares ETF seeks to outperform its benchmark by two times in a single trading day. My cost for this purchase is $9.45 ($10.00 – $0.55 = $9.45). My maximum profit would be $0.55, which corresponds to a 3% drop in the S&P 500.

See this post for more details on how to use covered calls to boost your portfolio’s income. It elaborates on the tactics used in this strategy. Covered calls can be in the money (ITM) or out of the money (ATM) (OTM). The post explains when and how to do so.

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