Technical Analysis. |
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Highlight Investments Group |
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May 22nd, 2002
Our analysis of volume over the past week has resulted in the following trades using QQQQ Options by our conservative mid-term trader.
| Security | Return |
| Call 1 (QQQQ June) | +30% |
| Call 2 (QQQQ June) | +83% |
| Put 1 (QQQQ July) | +18% |
| Put 2 (QQQQ July) | Holding |
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Total Earnings: |
$18,250 |
Even though all the above trades were very conservative, we still came out on top with a profit of $18,250.
Why close your call positions during
an uptrend?
Because there was a large amount of volume, and
a good portion of this volume occurred while the indexes were moving up,
there was some uncertainty whether the market would continue its uptrend.
Since MarketVolume's Market Commentary had not yet been updated, we found
that the best option would be to play safe and close all open call
positions.
Why use such a low strike price?
The fact that MarketVolume in its Market Commentary
was not 100% sure about whether the market would try to retest its support
level led to the decision to purchase longer term options in the event
that the market did continue to rally. The higher the price and the
further out the expiration month, the less depreciation in price as time
passes. This way you can make fairly conservative longer term trades using
options.
We would like to make it clear to our members what the motivation was to make the above trades; therefore, we have created what we call a 'Table of Motivation', in which we try to make it clear the motivation that was behind each of the above trades.
| Trade | Motivation | MV's Commentary on Members Home Page during the trade |
| Buy Call 1 | Volume for the NASDAQ 100 and S&P 500 indexes has been high for quite some time, and coupled with the fact that MarketVolume™ was suggesting the NASDAQ 100 was in the lower portion of it's support level, gave enough indication that this point would be a good entry point. | Volume over the past few days for the NASDAQ 100 and S&P 500 indexes has remained at unprecedented levels (60-day chart using a 1-day VMA), in other words, volume has been critical. ... Even so, our analysis still concludes that the NASDAQ 100 and S&P 500 are in the lower levels of their support corridor. |
| Buy Call 2 | The index moved further down and volume was decreasing as well. When volume began to increase again as the index was declining, it provided an excellent entry point to purchase more calls and to lower the average cost of the calls already purchased. | Volume is still at critical levels, and the longer the market keeps this up, the bigger a direction change we will see. Our analysis still conclude that the NASDAQ 100 and S&P 500 are in the lower levels of their support corridor. |
| Sell Call 1 | Due to the fact that the indexes have risen quite substantially, coupled with the large amount of volume recently generated, found that a safe option would be to close 30 of the 60 open call contracts and take the profit from them. Left 30 open contracts for a longer term gain. | Today we saw a great deal of volume near the end of the trading day for the NASDAQ 100 and S&P 500 indexes. ... Due to this analysis we still believe the market is in an up-trend, but with a chance for a small correction. |
| Sell Call 2 | Closed all call positions due to uncertainty in the future direction of the market. The volume over the past few days have contributed to the uncertainty of the market continuing it's uptrend. Felt the best option was to take profit now. | ...this does not mean that the S&P 500 and NASDAQ 100 indexes will not decline, but if they do, the decline will not be severe as there is not enough upside volume to substantiate a serious decline. Due to this analysis we still believe the market is in an up-trend, but with a chance for a small correction. |
| Buy Put 1 | Bought 50 put contracts based on the fact that the market seemed to be in a downward momentum, and the fact that there was a total lack of volume to stop this downward momentum led to the conclusion that the market will continue this direction until there is more supporting volume. | ...there is a chance that the market could still move slightly lower to fuel some more buying interest, and if this does occur, look for elevated volume and consider it a good point to add to your positions. |
| Buy Put 2 | ||
| Sell Put 1 | Closed 50% of open put positions due to the fact that in the middle of the day there was a moderate increase in volume, which led to some uncertainty as to wether the market will continue moving down. Sine the evidence was not 100% in favor of a change in direction, felt it best to close only half of open positions. | ...and the lack of any supporting volume as the index moved down, have increased the chances of another test of the support level for the NASDAQ 100 and S&P 500 indexes. Re-testing of the support level is not a 100% certainty, as if there is enough supporting volume in the days ahead, the indexes may continue on an up-trend. |
The same principles mentioned above works for trading S&P 500, S&P 100, Dow Jones, and other indexes.
Here is a detailed list of our investor's trades, which netted the above returns:
| Date |
Put/ Call |
Ctrcts |
Contract Price |
QQQQ Value |
Strike | VMA | Amount | Profit |
| 5/3/02 | B C1 | 30 | $5.25 | $29.87 | 25 | 1,922,500 | $15,750 | |
| 5/7/02 | B C2 | 30 | $4.15 | $29.23 | 25 | 1,849,900 | $12,450 | |
| 5/15/02 | S C1 | 30 | $6.80 | $32.15 | 25 | 2,452,100 | $20,400 | |
| 5/16/02 | S C2 | 30 | $7.60 | $32.64 | 25 | 1,348,500 | $22,800 | +$4,650 |
| 5/20/02 | B P1 | 25 | $7.15 | $32.53 | 40 | 1,198,900 | $17,875 | +$10,350 |
| 5/20/02 | B P2 | 25 | $7.15 | $32.53 | 40 | 1,198,900 | $17,875 | |
| 5/22/02 | S P1 | 25 | $8.45 | $31.31 | 40 | 1,608,400 | $21,125 | +$3,250 |
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Total: |
+$18,250 | |||||||
To see any of our past best trades, simply select from the list below.
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QQQQ Trading System QQQQ, SPY and DIA trading signals for conservative mid- and long-7 term traders ...
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