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
32% 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.
|
Security |
Return |
| Call #3 (QQQ
April) |
+32.14% |
| Call #4 (QQQ
April) |
0.00% |
|
Total Profit: |
+$2,700 |
Even though the trades shown above were not entirely without
risk, they resulted in a profit of $2,700
Recommendation:
If you trade options, we recommend you invest only a small
portion of your assets - an amount that will fit your personal
trading needs and risk tolerance. In our opinion, that amount
should be about 10% of your total portfolio; it should never
exceed 30%
At the same time, we do not recommend that you commit more than
30% of your options portfolio to a single trade. If the market
doesn't move in your favor, but indicators remain strong, you may
choose to invest another 30% of your options portfolio on a second
signal, and perhaps even on a third signal. By proceeding in this
way, each time you enter the market in a better position, and
usually the profit from the last trade will more than compensate
for the loss from your first trade.
Should I try to paper trade before
trading options?
Yes! We suggest that anyone who is new to our signals and
analysis try doing some paper trading to start, at least until
they are comfortable with interpreting our signals. 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.
What is a 'VMA surge to the upside'
(selling volume)?
Simply put, that means that most of the volume surge was
connected with the index while it was moving up.
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
#3
02/13/2004
Was left opened
last week |
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. |
Sell
Call #3
02/18/2004 |
During the rally, the market
encountered a large amount of selling volume to the upside,
which peaked at approximately 12:30. |
The upcoming options expiration
will likely lend some volatility and instability to the
short-term market. |
Buy Call
#4
02/20/2004 |
In the morning today the market
greeted us with what seemed like a continuation of Thursday's
sharp afternoon decline, with a large buying VMA surge to
the downside shortly after opening. |
After options expiration we
expect that the market will continue its mid-term and
long-term bullish uptrend. |
Sell
Call #4
02/20/2004 |
During the afternoon rally rally,
a large selling VMA surge to the upside occurred, peaking at
approximately 14:15. |
Yet despite the large amounts of
buying volume seen of late, we believe there is room for a
continued move lower in the short-term, especially in light
of the selling VMA surge seen around 14:15. |
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 |
| 02/13/2004 |
Buy Call #3 |
$37 |
April |
60 |
$1.4 |
-$8400 |
|
|
02/18/2004 |
Sell Call #3 |
$37 |
April |
60 |
$1.85 |
+$11100 |
+$2,700 |
| 02/20/2004 |
Buy Call #4 |
$37 |
April |
60 |
$1.3 |
-$7800 |
|
|
02/20/2004 |
Sell Call #4 |
$37 |
April |
60 |
$1.3 |
+$7800 |
$0 |
|
Total: |
+$2,700
(+32.1%) |
