Technical Analysis. |
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Highlight Investments Group |
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July 17th, 2002
This week our professional short-term trader was able to generate a great deal of profits playing with the volatility in the market due to the support corridor!
| Security | Return |
| Call 1 (QQQQ Aug) | +21.0% |
| Call 2 (QQQQ Aug) | +40.5% |
| Call 3 (QQQQ Aug) | Holding |
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Total Profit: |
+$10,085 |
Even though all the above trades were very conservative, we still came out on top with a profit of $10,085
Why are these trades taking place in such
a short period of time?
When the market is in a support corridor the indexes have a high degree
of volatility, which means they can move up or down my many percent at a
time. To reduce the risk factor it is best not to keep options for more than
a few days at a time as a large move in the index can substantially affect
the price of options contracts especially with such high volatility.
Why buy August call options?
Even though August Call options are more expensive, they tend of be less
volatile in reaction to market swings, and they don't devalue as quickly as
a current month option. By trading options which are at least one month
ahead we protect ourselves from unforeseen short-term fluctuations in the
market.
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 | Based on MarketVolume's Market Commentary and the fact that volume to the downside has been cumulating and HAS to affect the market at some point, decided to purchase 95 contracts of QQQQ Calls. Since the market is in a support corridor, the indexes can easily move up (and down) a by a few percent at a time. This is not an entirely conservative trade, but since the market is in a support corridor the risk is somewhat reduced. | The market seems to be entering a support corridor phase, based on its behavior, but we still need to see some appreciable volume to the downside before we can confirm this phase. Due to this the market could easily move up a few percent even on a small amount of volume. This is where the volume we saw at the end of today for the S&P 500 and NASDAQ 100 comes into play, whereas this volume COULD move these indexes higher in the short-term by as much as a few percentage points. |
| Sell Call 1 | Sold all open call contracts due to the large amount of volume to the upside of the NASDAQ 100 index at the end of the day. Generally this signals that the market will move down. Also the next day will be a half day for the markets and the indexes can be quite unpredictable on short trading days as the reduced activity can easily move prices dramatically. | Keep in mind that there is not as of yet a clear signal that a support level has been reached, there is only evidence that the market is approaching a new, as yet undefined, support level. Until this level is reached the market has room to move down, and may even move up in the short-term in reaction to the cumulative effects of volume we saw to the downside over the past week. |
| Buy Calls 2,3 | Bought a total of 200 QQQQ call contracts based on the fact that the NASDAQ 100 index has approached a 4 year low and there has been a good deal of volume to the downside during the index's decline to this level. Based on MV Market Commentary there is a chance that the indexes will move higher when it hits a level such as this. | Based on the levels of volume we are beginning to see accumulate on the S&P 500 index and somewhat for the NASDAQ 100 index, it is beginning to look like the market is nearing a new support level. Once the market has set a support level, and there is enough supportive volume, the market will remain in a support corridor phase for a short period before re-testing the newly set support level and changing into an up trending market. Keep in mind that the S&P 500 index is leading the way when it comes to volume and the NASDAQ 100 index has yet to confirm this trend fully, but when these two indexes do diverge such as they are, we generally take the S&P 500 index as being more accurate in predicting trends in the market as a whole. |
| Sell Call 2 | Sold 1/2 of all open QQQQ Call contacts (100 contracts) based on the fact that the market has moved up since the morning and volume to the upside has been increasing steadily, which signals that there is a chance the market will move lower the next day. Decided to keep 100 contracts open on the premise that a support level has been reached and the chances the market will move higher may be higher than the chances of the market moving lower. There is a chance that the market will rebound after hitting a lower point again, and that will be a good point to buy more contracts at a lower price. |
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 |
| 7/2/02 | B C1 | 95 | $2.05 | $23.95 | 24 | 1,708,300 | $19,475 | |
| 7/3/02 | S C1 | 95 | $2.48 | $25.05 | 24 | 1,482,200 | $23,560 | +$4,085 |
| 7/11/02 | B C2 | 100 | $1.48 | $23.59 | 24 | 1,588,400 | $14,800 | |
| 7/11/02 | B C3 | 100 | $1.48 | $23.59 | 24 | 1,588,400 | $14,800 | |
| 7/11/02 | S C2 | 100 | $2.08 | $24.75 | 24 | 2,627,100 | $20,800 | +$6,000 |
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Total: |
+$10,085 | |||||||
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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