Technical Analysis. Nasdaq 100, |
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Highlight Investments Group |
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September 11th, 2003
Our short-term index options trader traded S&P 500 index options for this best trade of the week, but one could have traded NASDAQ 100 index shares or options using the same method. These trades were based strong volume signals and our Market Commentary.
NOTE: This chart of the week is meant mainly for educational purposes. We don't recommend that our customers follow these exact trades. We suggest that you develop your own trading style and try doing some paper trading before using our volume analytics.
This week's Best Trade of the week is a continuation on our previous best trade where we left an S&P 500 index options put position open. It turned out to be an excellent call, as the market continued to move lower and our short-term options trader, trading S&P 500 index options, came out with a good profit in the end.
| Security | Return |
| Put #1 (SPX October) | +9% |
| Put #2 (SPX October) | +35% |
|
Total Profit: |
+$5,400 |
Last Week's Trades
Continuation of Last Week's Trades
Even though all the above trades were not entirely without risk, we came out on top with a profit of $5,400
How can this chart be used by me?
Our main reason for publishing these charts is to allow our members to learn
by another trader's example how they can make trades based on our volume signals
and Market Commentary. Members can gain a better understanding of how to enter
and exit the market, based on when a signal is generated. To learn from these
charts, you don't need to trade the specific security mentioned in this
publication, but whatever security you feel comfortable with. The principles for
trading SPX options will not change when trading something like S&P 500 index
futures, futures or SPDRs
shares.
I trade S&P 500 / SPDRs. 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 S&P 500 index
shares, and options.
Why did you trade against the current mid-term trend?
Our trader decided to take advantage of short-term movements in the market.
This by no means invalidates the fact that the prevailing trend was up. When
the market is in an uptrend, there are always points where excellent sell
signals are generated; therefore, our trader decided to take advantage of these
signals. Also, MarketVolume's Market Stage mentions that the market is in a
resistance corridor, which means that the market will be
volatile, excellent for short-term trading. Generally we don't
recommend trading against the current trend unless you are a very skilled
trader.
Should I Trade Options?
Only very experienced traders should trade
options because of the high risk involved. You can always trade index shares
instead of options and still make a decent profit, but returns will not be as large.
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.
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. Only very experienced traders should trade options
because of the high risk involved. You can always trade index shares instead of
options and still make a decent profit, but returns will not be as large.
Can I trade Rydex or ProFund index funds using your Market
Commentary and signals?
Yes, our system is meant for index traders, and there are many Mutual Fund
options to choose from when trading indexes. So yes, our indicators are good for
trading Mutual Funds, especially dynamic Rydex funds.
We would like to the motivations that led to the above trades as clear as possible; therefore, we have created what we call a 'Table of Motivation', in which we try to make the purpose behind each of the above trades as clear as possible.
| Trade | Motivation | MV's Commentary on Members Home Page during the trade |
| Buy Put #1 | The main reason for entering in to a short positions was because the Market Commentary stated that there is a good chance for the market to pull back from its recent highs and because there has been very high levels of resistive volume, which has been increasing steadily over the past several days. Because of all this, we decided to enter into a short position on the S&P 500 index by purchasing S&P 500 index options (root symbol SPX). | As the market moved higher, it encountered a large resistive VMA spike to the upside at 12:20, which caused the market to abate its move higher, but it didn't cause much of a drawback due to the supportive volume seen shortly thereafter. As the market moved higher in the later afternoon, it encountered another large resistive VMA spike to the upside, to which the market has yet to react. Overall, we believe that the resistive volume seen today will cause the market to have a short-term correction, but after a short-term correction we still believe there is room for the market to move higher. |
| Buy Put #2 | Although the market did not pull back today (it remained in a tight trading range), we did see more resistive volume to the upside during the afternoon. Because of this and the recent Market Commentary stating that a correction is inevitable, we purchased even more put options for a slightly lower price than the original trade. | These resistive VMA spikes helped to move the market slightly lower by close. The NASDAQ 100 index had a more immediate response to the resistive volume seen this afternoon, but the S&P 500 remained fairly flat near the end of this day. The reasoning behind this is because the resistive volume on the NASDAQ 100 was larger and more pronounced than on the S&P 500, causing the NASDAQ 100 to move lower in the afternoon and the S&P 500 index to remain fairly stable. Overall, we believe that the market will move lower in the short-term, as it has yet to respond to the resistive volume we've seen over the past few days. In the mid-term, we believe that there is still room for the market to move higher after a short-term correction. |
| Sell Put #1 | Today the market began to move lower and as the Market Commentary predicted, it was accompanied by a large supportive VMA spike to the downside. Because of this supportive volume, we felt it necessary to close some of our SPX put positions, but we also left some open. The reason we left some of the put options open is that we don't believe that this supportive VMA spike to the upside entirely cancels out the resistive volume seen over the past several days. As a result, we kept 10 contracts open for next week. | These resistive VMA spikes to the upside didn't cause any immediate reaction in the market other than to keep it from moving much higher. The behavior that we've been seeing over the past couple days is indicative of the market being in the upper reaches of a resistance corridor. Overall, we believe that due to the resistive volume seen over the past several days, as the market was approaching new highs, that the market is due for a short-term correction. After a short-term correction, we expect to see more supportive volume that should lead the market to move higher in the mid-term. |
| Sell Put #2 | As the Market Commentary stated, the market would likely continue to move lower, which it did. As the market moved lower it encountered more supportive volume. We did not sell on the first supportive VMA spike as half of it was associated with resistive volume, so we continued to hold onto the position. By the end of the day we saw more supportive volume and we decided to sell all remaining shares on that supportive volume because there was a good chance that the market would move higher the next day. | The last two supportive VMA spikes to the downside were not very large in comparison to the resistive volume seen over the past several days. Overall, we believe that the market could continue to move lower in the short-term as it continues to react to the resistive volume seen over the past week. Our mid-term outlook still remains up as we expect to see more and more supportive volume in the days to come. |
The same principles mentioned above works for trading NASDAQ 100, S&P 100, Dow Jones, as well as 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 |
| 09/03/03 | B P1 | 10 | $12.40 | 1,026.76 | 995 | 3,435,400 | $12,400 | |
| 09/04/03 | B P2 | 10 | $12.20 | 1,026.81 | 995 | 3,107,200 | $12,200 | |
| 09/05/03 | S P1 | 10 | $13.50 | 1,021.40 | 995 | 3,901,100 | $13,500 | $1,100 |
| 09/11/03 | S P2 | 10 | $16.50 | 1,012.25 | 995 | 2,960,100 | $16,500 | $4,300 |
|
Total: |
+$5,400 | |||||||
To see any of our past best trades, simply select from the list below.
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To see any of our past best trades, simply select from the list below.
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