Technical Analysis. |
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Highlight Investments Group |
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October 25, 2002
This week we made some good mid-term S&P 500 options trades where our professional trader was able to purchase during each index dip and peak.
| Security | Return |
| Call 1 (SPX Jan) | +21.24% |
| Put 1 (SPX Jan) | +21.99% |
| Call 2 (SPX Jan) | +23.42% |
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Total Profit: |
+$14,426 |
Even though all the above trades were not entirely without risk, we came out on top with a profit of $14,426
Why SPX options?
Generally we trade options, and in this case SPX (S&P 500) options because
they offer a high return, but are less risky than futures for the S&P 500 index.
One can trade S&P 500 index futures, SPDRs stocks, SPX options (as we did), or
even SPX futures options. There is a wide array of trading vehicles that are
tied to the S&P 500 index, and it's mostly up to the individual trader as to
which is preferred to trade.
I trade the NASDAQ 100 / QQQQ. How does this apply to me?
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 this, you can trade NASDAQ 100
index shares and options. You can probably make more money doing so because the NASDAQ 100
is more volatile.
Why buy expensive January Calls & Puts?
Even though January Call & Puts options are more
expensive, they tend of to be less volatile in reaction to market swings,
and they don't devalue as quickly as a current month option. By trading
options that are at least one month ahead, we protect ourselves from
unforeseen short-term fluctuations in the market. Also, if the uptrend
continues on a long-term, one can hold these options for a longer period as
they increase substantially in value.
Should I Trade Options?
Only very experienced traders should trade options because of the high risk.
You can always trade index shares instead of options and still make profits;
returns will not be as large.
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 Put 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 | Bought calls based on the fact that Market Commentary mentioned a new uptrend and that the market will probably move higher before going down at all. | What happened today is that the volume to the upside and the volume to the downside cancelled each other out, and due to that the market may move up in the short-term. |
| Sell Call 1 | Based on MarketVolume's Market Commentary, decided to tell the call because there was a large VMA spike to the index's upside, and that signals that the market could move down. | At the end of the day today we saw a moderate spike in volume to the upside that may cause the index to move lower in the short-term, but since there was a general lack of volume today, this could cause the market to continue on it's upward trend until there is another large VMA spike to the upside. |
| Buy Put 1 | Bought a put near the end of the day since the market had not yet reacted to the large VMA spike seen during the afternoon. This is a signal that the market may move lower in the coming days. | |
| Sell Put 1 | The market has now made a rather nice mid-term correction, and since there was a moderate VMA spike as the index was moving down, decided that the best course of action would be to close all open put positions with a nice profit. | The volume we saw in the afternoon moved the market slightly higher, but again with some resistive volume to the upside, which may cause the market to move lower in the short-term. The cumulative effects of resistive volume from yesterday and today may cause the market to have a mid-term correction. |
| Buy Call 2 | Bought some calls based on the fact that the index had already made a good correction, and there was some supportive volume during midday today. | |
| Sell Call 2 | Decided not to sell all call positions based on the previous days large VMA spike since the market seems to have a delayed reaction to any resistive volume. Luckily that tactic paid off and was able to sell the call options with a good profit. | As the market moved higher today there was a substantial VMA spike to the upside, which makes us think that soon the market should have a mid-term correction. Even though the general trend of the market is up, the volume we have been seeing to the upside tells us that the market has to give a little back before moving ahead. |
The same principles mentioned above works for trading NASDAQ 100, 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 |
Index Value |
Strike | VMA | Amount | Profit |
| 10/18/02 | B C1 | 5 | $37.10 | 875.17 | 900 | 3,001,600 | $18,550 | |
| 10/21/02 | S C1 | 5 | $44.98 | 895.07 | 900 | 3,897,700 | $22,490 | $3,940 |
| 10/21/02 | B P1 | 8 | $30.24 | 899.53 | 875 | 3,543,400 | $24,192 | |
| 10/23/02 | S P1 | 8 | $36.89 | 879.26 | 875 | 2,837,500 | $29,512 | $5,320 |
| 10/23/02 | B C2 | 6 | $36.76 | 877.21 | 900 | 3,048,500 | $22,056 | |
| 10/24/02 | S C2 | 6 | $45.37 | 897.85 | 900 | 3,630,400 | $27,222 | $5,166 |
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Total: |
+$14,426 | |||||||
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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