Technical Analysis. |
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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 calls based on some strong signals and what we published in our Market Commentary.
| Security | Return |
| Call 1 (SPX Dec) | +8.5% |
| Call 2 (SPX Dec) | +55.9% |
| Call 3 (SPX Dec) | +65.2% |
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Total Profit: |
+$36,000 |
Even though all the above trades were not entirely without risk, we came out on top with a profit of $36,000
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.
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.
Why didn't you trade
January 2003 options?
We would have traded January 2003 options, but at this point in time
they are not very liquid, making it quite difficult to buy calls at a
decent price, of even at all. We took a little more risk by buying
December calls, but we were confident as to the market's direction and
decided to risk it.
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.
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 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 | MarketVolume's Market Commentary coupled with elevated volume to the downside led to the decision to purchase S&P 500 calls. The main factor was that the market is in a general uptrend, and it is safer to buy calls than it is to buy puts. | Due to the cumulative supportive volume as the market retested its support level, we have to conclude that the market entering an Uptrend. |
| Sell Call 1 | MarketVolume's Market Commentary mentioned a chance of moving even lower in the short-term, and since there was very large amounts of resistive volume, found that it was a good point to sell calls. | 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. |
| Buy Call 2 | Due to a very large amount of supportive volume that occurred as the index moved down, decided to buy some more calls. MarketVolume's Market Commentary also mentioned that the market could move higher, and this was a VERY clear buy signal. | Over the past couple of days the market had a short-term correction, but today it broke that trend and moved higher. The market is setting what looks like a local support level, and has been generally bouncing off that level. |
| Buy Call 3 | ||
| Sell Call 2 | The S&P 500 and NASDAQ 100 indexes have reached a high point they have not seen for months, and due to this there is a good chance of a short correction due to profit-taking. That and the fact that almost all volume today was volume to the upside influenced the decision to sell half of all open position. | The amount of resistive volume to the upside we saw today could move the market lower in the short-term, as there was not very much supportive volume during the day. |
| Sell Call 3 | After the feds announced an interest rate change the market moved quite erratically and then moved higher. As it moved higher there was quite a bit of resistive volume to the upside and due to this decided to sell all open positions in order to remain in profitable territory. | As the S&P 500 and NASDAQ 100 indexes declined in the morning and afternoon today we saw a moderate amount of supportive volume. This supportive volume could drive the market up to its recent highs in the mid-term, but the VMA spike we saw at the end of the day could cause a short-term move down. |
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 |
| 10/17/02 | B C1 | 6 | $28.05 | 878.28 | 900 | 3,903,300 | $16,830 | |
| 10/23/02 | S C1 | 6 | $33.21 | 894.02 | 900 | 4,250,200 | $19,926 | $3,096 |
| 10/24/02 | B C2 | 9 | $27.30 | 881.03 | 900 | 3,880,100 | $24,570 | |
| 10/24/02 | B C3 | 10 | $27.30 | 881.03 | 900 | 3,880,100 | $24,570 | |
| 11/4/02 | S C2 | 9 | $43.25 | 919.73 | 900 | 3,822,500 | $43,250 | $14,355 |
| 11/6/02 | S C3 | 10 | $45.85 | 924.41 | 900 | 5,573,800 | $45,850 | $18,550 |
|
Total: |
+$36,000 | |||||||
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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