Wednesday, March 22, 2006

Time to Play Index --- QQQQ

An Option Strategy Example: QQQQ (NASDAQ 100 Trust Shares)

The following chart is QQQQ’s three month comparison with Dow and Nasdaq.

From this chart, we can easily see that the NASDAQ 100 has increased a little when Dow gone up to 4% and Nasdaq gone up to 3%.

It is a principle that whenever there is a gap, there should be a trend to erase the gap. The trend should be: Dow is down and QQQQ is up relatively.

For the past three month, the over all market went up. Because the QQQQ is clearly behind the market, it should catch up a little bit.

The economy seems good as far. I think the first quarter earning should be good for most of companies. The good earning or good earning expectation should lift the QQQQ also.

It seems that we have reasons to believe the QQQQ will be up soon.

How can we get benefit from our conclusion?

My strategy is to buy 8 calls of QQQQ:

6 calls: strike price $42, expiration date 4/22/06 at price $0.40
2 calls: strike price $42, expiration date 5/20/06 at price $0.80

Supposed I bought them today. My total investment is (0.4*6+0.8*2)*100 = $400. (The prices are all based on today’s real market price).

Today, the closing price of QQQQ is $41.21. My first price target is $42. I wish it could happen within March.

From tomorrow, I will report the market price of those calls daily, and show you a whole life cycle of an option trading thought this real example.


Post a Comment

<< Home