Chart of the Week:
QQQ Options for August 27, 2003
Our short-term trader has made some trades based on our advice and analysis, he was able to make two promising trades that could lead to a tidy profit.
NOTE: This chart of the week is mainly intended for educational purposes. We don't recommend that our customers follow these exact trades. We suggest that you develop your own trading style and try doing some paper trading before using our volume analytics.
The past week has been an excellent week for any traders following our Market Outlook and our volume signals. Last Thursday we saw a large buying VMA surge to the downside, which signaled the market will move higher in the short-term, but selling volume countered this move on Friday. As the week progressed we didn't see much volume at all, but on Tuesday we saw another moderately large buying VMA surge to the upside that caused the market to move higher until Wednesday when we saw a second selling VMA surge to the upside, which in combination with Tuesday's selling volume may cause the market to move lower in the short-term.
This chart will be an excellent example of how mid-term options traders can use MarketVolume's volume charts to make several successful trades during a single week.
Motivations behind Trades: The main motivation for the purchase of QQQ call options last Thursday was because of the large buying VMA surge to the downside, which MarketVolume's Market Outlook suggested would cause the market to move higher in the short-term. On Friday, the market moved higher in response to the previous day's buying volume, but in doing so it generated a moderately large amount of selling volume to the upside. Because of the selling volume it was a safer move to close all open QQQ call options instead of holding onto them for a longer period. During the end of last week and the beginning of this week there was relatively low amounts of volume, which make it difficult to confidently trade based on volume signals. On Tuesday we saw the first large buying VMA surge to the downside, which was an excellent signal for the market to move higher in the short-term. As a result of the buying volume more QQQ call options were purchased. By Wednesday there was more selling volume to the upside, which in combination with the selling volume seen at the end of Friday could cause the market to move lower in the coming days. Because of these two selling VMA surge the remaining QQQ call options were closed.
How can this chart be used by me?
Should I try to paper trade before trading options?
I trade the S&P 500 / SPDRs. How does this apply to me?
Why did you trade QQQ options?
Conclusion: Our mid-term options trader was able to make use of our Market Commentaries in combination with our Volume Signals in order to make several successful options trades. The first trade was rather cut and dry as there were two very clear volume signals to support entry and exit points. The second trade was not as clear-cut as our mid-term options trader decided to assign less weight to the first selling VMA surge and did not close on that point, but the second selling VMA surge was enough for him to close all his remaining call options. Overall, when one is trading options, it is best to choose the most liquid strike price so that any open positions can be quickly closed at a moment's notice.
The same principles mentioned above work for trading S&P 500, S&P 100, Dow Jones, and other indexes.
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