Best Mid-Term Trade
Mid-Term Trade
(October 21, 2005)
In the following example, we have based our
QQQQ options trades on S&P 500 index volume indicators and
on advance / decline indicators. Using the principles outlined below, you
may wish to trade options on the SPDRs (SPY), ^SPX, DIAMONDS Trust, Series 1
(DIA), as well as on other underlies that generally tend to move in concert
with the S&P 500 index. It is also conceivable that an analysis similar to
the one shown below could be used to trade options based on the NASDAQ 100,
Russell 2000, and other indexes.
Below you will find a Table of Trade Motivations and a chart showing the trades,
including detailed trade calculations.
For this "Best trade", A
trade (Buy Calls) is opened
in order to close it later with profit if the
index moves in our favor.
| Chart 1: |
Options trades on the
S&P 500 index modulated volume.
September - October, 2005. |
 |
| Chart 2: |
S&P 500 Index A/D
Issues Ratio |
 |
In Table 1 - a 'Table of Trade
Motivators' - we show the motivating factors that led us to take the
above trades.
Table 1: Table of Trade
Motivators
|
Date |
Trading Decision |
Indicator |
Description |
| 10/5-6/2005 |
|
High PVO* (buying VMA
surge) |
On October 5 and 6, 2005 we noted a high-magnitude
buying volume surge. The (2/20) PVO was 15.6% and 15.1%
respectively, indicating that
that the average volume was more then 15% higher than
it had been for the previous 20 trading days. |
| 10/10/2005 |
|
Extremely Bearish sentiment** |
On October 10, 2005 we noted
extremely low market sentiment readings. The S&P 500 advance/decline
(A/D) issues and A/D volume ratios reached critical levels of 0.09 and 0.14,
respectively. This revealed an extremely bearish market sentiment. |
| 10/20/2005 |
|
High PVO* (buying VMA
surge) |
On October 20, 2005 we noted a high-magnitude
buying volume surge. The (2/20) PVO was 17.9%, indicating that
that the average volume over the past 2 trading days was 17.9% higher than
it had been for the previous 20 trading days. |
| 10/21/2005 |
Point A:
Buy Calls |
High PVO* (buying VMA
surge) |
On October 21, 2005 we noted a high-magnitude
buying volume surge. The (2/20) PVO was 13.8%, indicating that
that the average volume over the past 2 trading days was 13.8% higher than
it had been for the previous 20 trading days. |
|
* High PVO (Percentage
Volume Oscillator) values indicate volume surges. As a rule, significant volume
surges point to coming market reversals.
** Extremely bearish/bullish sentiment indicates that the market is oversold (or
overbought) and thus prone to trend reversals. |
Below we list in detail the actual trades made,
along with the netted returns achieved.
Table 2: Details of the trades
|
Date |
Trade |
Strike |
Expiration |
Contracts |
Contract
Price |
Amount |
Profit |
|
10/21/2005 |
Buy QQQAL Calls |
$38 |
1/20/2006 |
60 |
$1.70 |
- $10,200 |
|
For this "Best trade", A trade (Buy
Calls) is opened
in order to close it later with profit if the
index moves in our favor.
In choosing the options for these trades, the
following criteria were used:
- We chose options with at least two months
left until expiry;
- We chose the cheapest available
in-the-money options
We welcome any questions or comments you might have regarding
this "best trade".
Important:
The analysis results presented in the "Best Trade" may differ from
the outlook presented in the daily Market Commentaries. Results may also differ
from the trading signals generated for Exchange Traded Funds (ETFs), or from any
other research and analysis efforts shared with our members. These are products
developed by independent research teams, delivered to MarketVolume® members.
While sharing some research results, these autonomous research teams may use
different systems and may have dissimilar market outlooks.
| Disclaimer: This newsletter is intended
for educational purposes only – it does not constitute trading advice,
nor does it make or imply any market trend predictions. This newsletter illustrates
examples based
principally on MarketVolume®'s index volume indicators and advance/decline (AD)
indicators. 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
analytics to develop your own trading style. |
|