Our 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.
This week's "best trade of the week"
is a continuation of the previous week’s best trade,
where we left a QQQ Call position open.
This trade was closed with
15% of profit.
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
#2" is opened
in order to close it later with profit if the index moves in our favor.
|
Security |
Return |
| Call #1 (QQQ March) |
+15.38% |
|
Total Profit: |
+$2,000 |
Even though the trades shown above were not entirely without risk, they
resulted in a profit of $2,000
Should I Trade Options?
Only very experienced traders should trade options because of the high risk
involved. You can always trade index shares instead of options and still make
a decent profit, but returns will not be as large.
Why were only call options were purchased?
It's very risky to buy put options when general market trend is defined as
an up-trend. This is because the market does not always react to buying
volume in a timely manner, or sometimes the reaction is not as large as
expected. In the majority of the case, the market will react to buying
volume during an uptrend, but selling volume will be somewhat diluted,
unless it is a very large amount of selling volume.
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 Call #1
01/29/2004
Was left opened
last week |
During the market's descent, it encountered several buying VMA surges to
the downside at 10:15, 11:45 and at 13:45. |
We
still expect that the market will continue to move higher in the mid- and
long-term as it continues in its bullish up-trend. |
Sell Call #1
02/02/2004 |
During the market's late morning rally it encountered two large selling
VMA surges to the upside at 12:00 and 12:45, the second of which was the
point at which the market began to descend. |
We believe that today's large selling VMA surges to the upside will likely
cause the market to continue moving lower in the short-term in order
to generate more buying volume to the downside. |
Buy Call #2
02/04/2004
Left opened |
During the markets descent, it generated a relatively large buying VMA
surge to the downside at 14:15. This buying VMA surge stopped the market
from descending much further throughout the rest of the day, in effect it
set the day's support level. |
We
currently do not seen any need to alter our bullish mid- and long-term
prospectus as we haven't seen the amount of selling volume one would need
to change the mid- and long-term's current up-trend. |
The principles discussed above also apply when trading the
NASDAQ 100, the
S&P 100, the Dow Jones, 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 |
| 01/29/2004 |
Buy Call #1 |
$37 |
March |
100 |
$1.3 |
-$13000 |
|
| 02/02/2004 |
Sell Call #1 |
$37 |
March |
100 |
$1.5 |
+$15000 |
+$2,000 |
| 02/04/2004 |
Buy Call #2 |
$37 |
March |
120 |
$1.05 |
-$12600 |
|
|
Total: |
+$2,000
(+15.4%) |
We welcome any questions or comments you might have regarding this "best
trade of the week".
