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4/18/2006
"I don't know how other people trade without it!"
(J. K. MV subscriber since September 2003)
37% returns in 1 day
by trading Volume Surges
and Advance/Decline Indicators!
This "best trade" is a continuation of previous "Best trade" newsletter posted (sent to MV subscribers) on April 17, 2006 where we left a QQQQ Call position open.
| Security | Return |
| Calls (QQQQ - QQQFO) | $4,800 |
Below you will find a Table of Trade Motivations and a chart showing the trades, including detailed trade calculations.
| Chart 1: | S&P 500 Volume
Surges - April, 2006. |
 | |
Chart 2: | S&P 500 Advance/Decline Volume Ratio - April, 2006. |
 | |
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 |
| 04/07/2006 | On April 7, 2006 we noted low market sentiment readings. The S&P 500 advance/decline (A/D) issues and A/D volume ratios reached strongly bearish levels of 0.13 and 0.11 around 15:41, respectively. This revealed an extremely bearish market sentiment, indicating the market was oversold and thus prone to trend reversals. | |
| 04/11/2006 | On April 11, 2006 we noted low market sentiment readings. The S&P 500 advance/decline (A/D) issues and A/D volume ratios reached strongly bearish levels of 0.12 and 0.13 around 15:37, respectively. This revealed an extremely bearish market sentiment, indicating the market was oversold and thus prone to trend reversals. | |
| 04/17/2006 | Buy Calls | On April 17, 2006, we noted a high-magnitude buying volume surge. The bulk of this volume surge occurred after 12:25, at a time when the index was in decline (see 1-day index volume charts and apply a 15-minute VMA). |
| 04/18/2006 | Sell Calls |
On April 17, 2006, we noted a high-magnitude
selling volume surge supported by high market sentiment reading.
The S&P 500 advance/decline (A/D) issues and A/D volume ratios reached strongly bullish levels of 10.18 and 11.05 Since the options we bought yesterday were in profit we decided to close all our open positions. This decision was also made due to the following facts: a) this week is options expiration week and the market may be very volatile in upcoming days, b) we saw volume surges indicating there could be a chance for a correction, c) advance/decline indicators revealed strongly bullish sentiment, d) our options showed more then 37% profit. Considering all of these we decided that it would be prudent to fix profits today at the market close. |
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 |
04/17/2006 | Buy QQQFO Calls | $41 | 6/16/2006 | 80 | $1.60 | -$12,800 |
04/18/2006 | Sell QQQFO Calls | $41 | 6/16/2006 | 80 | $2.20 | +$17,600 |
Profit: |
+$4,800 (37.5%) | |||||
Fast Answers:
Why did you trade QQQQ options?
Generally we trade options, and in this case QQQQ (NASDAQ 100 index shares) options because they offer a high return, but are less risky than futures for the NASDAQ 100 index. One can trade NASDAQ 100 index futures, QQQQ stocks, QQQQ options (as we did), or even NASDAQ 100 options on futures. There is a wide array of trading vehicles that are tied to the NASDAQ 100 index, and it's mostly up to the individual trader as to which is preferred to trade.
I trade the S&P 500 / SPDRs. How does this apply to me?
In our newsletters we apply S&P 500 analysis to trade QQQQ. The S&P 500 and NASDAQ 100 indexes have generally the same behavior. If you overlaid a chart of each of them during a short period such as this one, their general dynamic would be the same. Because of these, you can trade S&P 500 index shares, and options.
4/18/2006
HGH Associated Traders
List of Trading Newsletters sent out in 2006
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