What Is Downside Breakout?

The Prospero Downside Breakout signal is a short-term signal that ranks stocks or ETFs by their potential for significant price losses. A high number indicates that investors expect bad returns, which means you should look more carefully at this stock or ETF before buying or holding.

How to Use Downside Breakout

Downside Breakout ranges from 0 to 100 and can be examined for a certain stock or an aggregation of stocks such as ETFs.

• A score of 80+ indicates higher demand for negative bets in the long-term options markets, unfavorable analyst coverage, and negative price momentum. This signals a potential for significant price loss in the next year.
• A score of 20 (or less) indicates a lower chance of such losses in the next year.

A low Upside Breakout does not necessarily mean a high Downside Breakout. A stock can be positioned to have a lower chance of losses without having a higher chance of gains.

For example, a biotech stock could be viewed by the market as having a low probability of a clinical trial success. If the trial is a failure the stock might not move down much because that failure might be already “priced in”.  

Update Frequency and Usage for Downside Breakout

Downside Breakout updates every 2-5 minutes via options pricing dynamics. It also contains vital information outside of the options market, but does not move as sharply.