Category: Top » Finance »

Author: hirank4 | Total views: 28 Comments: 0
Word Count: 1068 Date: Thu, 18 Oct 2007 4:42 PM

Better Trades: A Powerful-Profitable-Cash-Cow

Dear Traders and Friends:

Lately I have had many students ask me about the QQQQ's - so much that it merits a rewrite. The QQQQ is an incredible choice for making money in today's market. Taking the time to learn this EXCHANGE TRADED FUND (ETF) could put fun, fast cash into your pockets. Don't let the fact that it is called an ETF scare you away. It is very simple to play. I missed making hundreds of thousands of dollars on this Powerful-Profitable-Cash-Cow because I feared it was complicated. Just remember what FEAR really means FALSE EXPECTATIONS APPEARING REAL!

The QQQQ owns all of the NASDAQ 100 stocks, but don't let that concern you either - this is a really good thing. All you need to do is ignore that it is an ETF or that it has 100 stocks in it. Just pretend it is a normal stock. Draw support and resistance lines as usual and then play it accordingly. The benefits to trading the QQQQ's are many.

1. You are not stuck in sharp unpredictable movements of ONE STOCK. Instead, you are trading a directional move of the NASDAQ market itself. This can be so much safer and predictable than a single stock...

2. The QQQQ's have strike prices every $1. The power of that is you can buy very inexpensive in-the-money options!

3. The open interest is very high; it is not uncommon to see 50,000 in open interest on a give strike price. This is powerful, as it amounts to the market makers being incredibly kind and not needing to steal extra money from us by using large bid x ask spreads. Instead they often are at the minimum spread.

What is a minimum spread? When we switched from fractions to decimals awhile back, the market makers wanted to make sure they could still make money buying and selling, so they created minimum spreads requirements between the bid and ask prices of options:

Options priced under $3 have 5 cent minimum incremental bid x ask spreads
Options priced over $3 have 10 cent minimum incremental bid x ask spreads

The nice thing about trading the QQQQ is it is rare that the market makers charge more than the minimum spread, and if they do it seems easy to get filled in the spread. Since the spread must be covered in order to profit on a trade, trading the QQQQ works for me!
Here are the top 10 heavy weights in the QQQQ:

1. MSFT = 10.18%
2. INTC = 5.17%
3. CSCO = 4.56%
4. AMGN = 4.18%
5. QCOM = 3.62%
6. DELL = 3.18%
7. CMCSA = 3.05%
8. ORCL = 2.84%
9. EBAY = 2.66%
10. IACI = 2.59%

Most of the other 90 stocks are under 1% in weight - so I tend to use this list above as the stocks that most likely will effect the movement of the QQQQ. You may have heard me say, as MSFT goes so goes the Q's (nickname for QQQQ). It is obvious since MSFT is so heavily weighted in the number one position that it will often have a significant effect in the movement of the Q's.

Again, just pretend the Q's are a stock and play support and resistance as usual. The incredible hidden secret about the QQQQ is that they only need small moves to make great money. Most people do not consider playing the Q's because they think they do not move fast or far enough what a critical error in judgment! If you look at an option chain on the Q's it is exciting - there are strike prices every one dollar! Here is why this is so powerful"

1. If one wants to buy call options, thinking that the QQQQ's are going up, to get a short-term option for a full month. Given the stock price is currently $31.60 the September $30 call is only $2.40 with a delta of .74 and open interest of over 71,000!

2. If you were to just take this stock play to profit from a 50 cent upward direction you should be able to make $400 on a $2,350 cost on 10 contracts in perhaps a day. That is a low cost for an option with such high a delta. If you did 20 contracts that is $800 profit, but 100 contracts is $4,000! To put $20,350 into 100 contracts and make $4,000 in a day is sweet. Wow, some people could make in one day trading the Q's more than they make at a job of 40 days! Do you see the power of this!

3. The open interest is so high that the market makers are doing the minimum spread here - 5 cents. They don't have to play games manipulating prices or manipulating us! It is really WIN-WIN for both of us. It is so nice not to have to deal with what I call THEFT MODE - market makers charging too much to buy or sell an option because of large bid x ask spreads.

Take the time to practice the Q's right away! It could pay off big time. Just practice buying calls one month out at support and puts at resistance. Take small profits, within a few days and go SHOPPING!

Today the front month (next expiration date) option is the August expiration date, so I would do the next month out - the September options. I want one full month minimum in my option - but I personally usually don't trade further out than that.

Look for a delta of .70 or higher for calls and -.70 or higher for puts to be able to jump in and get out fast for quick cash.

Open interest of 100 contracts or more is my criteria; get a different option if this rule cannot be met. The QQQQ's make this so easy to do!

I hope to see you at one of my live classes soon - find out why I am hailed the "BEST COVERED CALL WRITER IN AMERICA"! It is time to put the profits in your account, as I share every secret I know in my two day class called LIFESTYLE TRADING WITH LEAPS coming soon to a major city near you. Don't let the word LEAPS fool you, everything I teach can be done on stocks, but I can't promise you will ever want to trade stocks again after taking my class!!!

Darlene Nelson with BetterTrades