Best Mid-Term Trade
April 18th, 2004
Go to Best Trades
ArchiveOur short-term index
options trader traded QQQ options for this week’s "best trade of the
week", but could instead have traded NASDAQ 100 index shares or options using
the same method. This trade was based on our volume indicators and our Market
Commentary.
NOTE: We discuss our "best trades of the week" here mainly for
educational purposes. The trading examples we illustrate are based
principally on our volume indicators and market commentaries. Our main
intent is to show you how you can apply our volume indicators and to explain the
specific correlations that exist between volume surges and the movement of the
indexes. We do not mean to imply that you should follow our exact trades, but
rather wish to suggest that you may make use of our volume analytics to develop
your own trading style. We also urge you to paper trade before committing your
money to the markets.
For this week’s "trade of the week",
"Buy QQQ Call #1" is opened
in order to close it later with profit if the index moves
in our favor.
|
Security |
Return |
| Put #1 (QQQ June) |
+20.00% |
|
Total Profit: |
+$2,250 |
|
Nasdaq 100 Indicator
 |
Even though the trades shown above were not entirely without risk, they
resulted in a profit of $2,250
Why buy expensive options that will expire in 2-3
month?
Even though next months Call & Puts options are more expensive, they tend
to be less volatile in reaction to market swings, and they don't devalue as
quickly as a current month options. By trading options that are at least one
month ahead, you can protect yourself from unforeseen short-term fluctuations
in the market. Also, if the uptrend continues on a long-term basis, one can
hold these options for a longer period as they will substantially
substantially in value.
Why did you trade QQQ options?
Generally we trade options, and in this case QQQ (NASDAQ 100 index shares)
options because they offer a high return, but are less risky than futures for
the NASDAQ 100 index. One can trade NASDAQ 100 index futures, QQQ stocks, QQQ
options (as we did), or even NASDAQ 100 options on futures. There is a wide
array of trading vehicles that are tied to the NASDAQ 100 index, and it's
mostly up to the individual trader as to which is preferred to trade.
In the following, we would like to show you the
motivating factors that led us to take above trades. For this purpose, we have
created what we call a 'Table of Trade Motivators':
|
Trade |
Volume Motivation |
Market Commentary on Members Home Page during the
trade |
Buy Put #1
04/02/2004 |
On 4/2/2004 the
market moved higher throughout the morning and into the early afternoon,
when two large selling VMA surges to the upside appeared, one at 11:45,
the other at 12:30. Although these selling VMA surges slowed the market’s
ascent, they did not bring it to a stop. By 14:00, the market had generated
a further selling VMA surge to the upside. Although it was not nearly as
large as the previous surges, this third selling VMA surge brought about a
short-lived down move. A relatively small amount of buying volume to the
downside at 14:45 then counteracted, pushing the market higher again for the
remainder of the afternoon. The close was at the highs and was, in fact, the
highest closing level seen in several weeks. |
Today's volume
levels were among the heaviest in over a week. Since the majority of today's
volume was selling, we caution short-term traders about a possible
short-term downturn. |
Sell Put #1
04/15/2004 |
After initially
opening higher, the market moved lower throughout the rest of the morning
and early afternoon. However, by 12:15, a large amount of buying volume
to the downside was generated, but the only impact this buying VMA surge
had on the market at this point was to temporarily halt the decline. As
such, the market continued its decline until it ran into another very large
buying VMA surge to the downside at 14:15, which when combined with the
previous large buying VMA surge to the downside enabled the market to
begin moving higher. This main reason for this end-of-day rally was not only
today's buying volume, but the accumulation of buying volume seen
since Tuesday afternoon also had an impact on the market. |
The large amount
of buying volume generated this afternoon will add a great deal more
support to the current mid-term and long-term up-trend. We feel all the
buying volume that has been accumulating to date will enable the market
to continue its current bullish up-trend.
|
Buy Call #1
04/15/2004
Left opened |
After a slight
move down, the market almost immediately generated buying volume to the
downside and picked up after 9:45. A moderately buying VMA surge to the
downside at 13:45 helped slow the market’s decline. Whereas the
S&P 500
traded more or less sideways after this buying volume, the NASDAQ 100
maintained a slight downward bias for the remainder of the afternoon.
Shortly before the close, both indexes generated a further, albeit modest
buying VMA surge to the downside. |
We believe that
in the mid-term, the NASDAQ 100 may stage a more vigorous recovery than the
S&P 500, as it tries to compensate for the noted discrepancy. In the
mid-term, we anticipate the market will continue to move higher, as we
have not seen a significant accumulation of selling volume that would
bring about an end to the bullish mid-term up-trend. |
The principles discussed above also apply when trading the
NASDAQ 100, the
S&P 100, the Dow, as well as other indexes.
Following is a detailed list of the actual trades
made by our investor.
These are the trades which netted the returns shown above:
Date |
Trade |
Strike |
Expiration |
Contracts |
Contract
Price |
Amount |
Profit |
| 04/02/2004 |
Buy Put #1 |
$37 |
June |
75 |
$1.5 |
-$11250 |
|
| 04/15/2004 |
Sell Put #1 |
$37 |
June |
75 |
$1.8 |
+$13500 |
+$2,250 |
| 04/15/2004 |
Buy Call #1 |
$36 |
June |
75 |
$1.45 |
-$10875 |
|
|
Total: |
+$2,250 |
For this week’s "trade of the week",
"Buy QQQ Call #1" is opened
in order to close it later with profit if the index moves in our favor.
We welcome any questions or comments you might have regarding this "best
trade of the week".
|
2004 |
|
Date |
Indicator |
|
March 14, 2006 |
QQQQ Options |
|
March 10 2006 |
Trading QQQQ |
|
October
12, 2004 |
Options
Trading |
|
September 25, 2004 |
QQQQ Options |
|
September
18, 2004 |
QQQQ Options Trading |
|
September 10, 2004 |
QQQQ Options |
|
September
9, 2004 |
Trading Options |
|
September 7, 2004 |
QQQQ Trading |
|
September 2, 2004 |
QQQQ |
|
August 31, 2004 |
QQQQ Options |
|
August
19, 2004 |
QQQ |
|
August 18, 2004 |
Options Trading |
|
August
15, 2004 |
QQQQ Options Trading |
|
August 5, 2004 |
QQQQ Options |
|
August
3, 2004 |
QQQQ |
|
July 31, 2004 |
Trading QQQQ Options |
|
July 21, 2004 |
QQQQ Options |
|
July 14, 2004 |
Trading QQQQ |
|
July 13, 2004 |
Options
Trading |
|
July 1, 2004 |
QQQQ Trading |
|
June 23, 2004 |
QQQQ Options |
|
June 20, 2004 |
Options Trading |
|
June 6, 2004 |
QQQQ Options Trading |
|
May 30, 2004 |
QQQ Options |
|
May 25, 2004 |
QQQ Trading |
|
May 20, 2004 |
QQQQ Options Trading |
|
May 16, 2004 |
QQQ |
|
May 12, 2004 |
Options Trading |
|
May 09, 2004 |
QQQQ |
|
April 29, 2004 |
QQQQ Trading |
|
April 22, 2004 |
Options
Trading |
|
April 18, 2004 |
QQQQ Options Trading |
|
April 10, 2004 |
QQQQ Options |
|
April 6, 2004 |
S&P 500 Options |
|
March 28, 2004 |
Options
Trading |
|
March 14, 2004 |
QQQQ Options |
|
March 7, 2004 |
QQQQ Options Trading |
|
February 29, 2004 |
Options Trading |
|
February 22, 2004 |
QQQ |
|
February 15, 2004 |
QQQQ Trading |
|
February 8, 2004 |
QQQQ |
|
February 1, 2004 |
Options Trading |
|
January 25, 2004 |
QQQQ Options Trading |
|
January 18, 2004 |
QQQQ |
|
January 12, 2004 |
QQQQ Options |
|
|
