Mid-Term
Trade (November 25, 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.
This "best Short-term trade" is a continuation of the
previous best trade, where we left a
QQQQ Put
position open.
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.
November, 2005. |
 |
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 |
Motivation |
| 11/2/2005 |
|
Selling VMA surge: On November
2, 2005 we noted a high-magnitude selling volume surge. The (2/20)
PVO was 13.7%, indicating that that the average volume was more then
14% higher than it had been for the previous 20 trading days. |
| 11/3/2005 |
|
Selling VMA surge: On November
3, 2005 we noted a high-magnitude selling volume surge. The (2/20)
PVO was 20.8%, indicating that that the average volume was more then
21% higher than it had been for the previous 20 trading days. |
| 11/9/2005 |
Point
A:
Buy Puts |
Intraday VMA surge: On November
9, 2005 we noted a high-magnitude selling intraday volume surge. The
(30-min/1-day) PVO was 59.6%, indicating that that the average
modulated volume in period from 12:30 until 13:00 was more then 60%
higher than it had been for the previous trading. |
| 11/25/2005 |
Point
B:
Sell Puts
Buy Calls |
Daily Market Outlook (11/23/2005):
Mid Term (lasts a few weeks to a few months): We are faced with a
situation where the SBV (selling volume / buying volume) and AD (advance
/ decline) charts diverge. Whereas the 60-day SBV chart shows a
significant buildup of selling surges (in early November and again since
November 18), a 2-year AD chart does not confirm a break from the
current mid-term uptrend. Whereas the SBV chart indicated that a
reversal of the mid-term uptrend should have occurred by now, this
message is presently being contradicted by the non-confirming advance /
decline indicators.
Mid-Term Trend Outlook - Once a possible short-term downswing is
behind us, we believe the mid-term uptrend will continue. |
|
* High PVO (Percentage Volume Oscillator)
values indicate volume surges. As a rule, significant volume surges
point to coming market 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 |
|
11/09/2005 |
Buy QQQMO Puts |
$41 |
1/20/2006 |
70 |
$1.45 |
- $10,150 |
|
|
11/25/2005 |
Sell QQQMO Puts |
$41 |
1/20/2006 |
70 |
$0.60 |
+$4,200 |
-58.6% |
|
11/25/2005 |
Buy QQQAO Calls |
$41 |
1/20/2006 |
70 |
$1.45 |
- $10,150 |
|
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.
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. |