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
33% 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 #3" is opened
in order to close it later with profit if the index moves in our
favor.
|
Security |
Return |
| Call #2 (QQQ
March) |
+33.33% |
|
Total Profit: |
+$4,200 |
Even though the trades shown above were not entirely without
risk, they resulted in a profit of $4,200
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
#2
02/04/2004
Was left opened
last week |
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. |
Sell
Call #2
02/11/2004 |
Volume levels today, for the
first time in a week, rose above the relatively low levels that
we have been seeing. Shortly after the rally began, the market
encountered a substantially large selling VMA surge to the
upside, which peaked at 11:30. |
We still expect that the market
may begin to pullback as it reacts to today's large
amount of selling volume |
Buy Call
#3
02/13/2004
Left opened |
A large VMA surge to the downside
occurred at 10:45, but this buying volume brought only a
temporary reprieve, as by 11:45, the decline resumed, although
not quite as pronounced as earlier in the day. A large
buying VMA surge to the downside appeared at 12:30. |
We expect a move lower in the
short-term followed by a strengthening of the ongoing mid-
and long-term uptrend.
|
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 |
| 02/04/2004 |
Buy Call #2 |
$37 |
March |
120 |
$1.05 |
-$12600 |
|
|
02/11/2004 |
Sell Call #2 |
$37 |
March |
120 |
$1.4 |
+$16800 |
+$4,200 |
| 02/13/2004 |
Buy Call #3 |
$37 |
April |
60 |
$1.4 |
-$8400 |
|
|
Total: |
+$4,200
(+33.3%) |
We welcome any questions or comments you might have regarding
this "best trade of the week".
