Friday, April 24, 2015

QQQ Analysis

Update 4/29/2015: QQQ continued its upward momentum for one day after I entered the position and then declined for two days, moving my position to the unprofitable column as expiration neared.

Shares declined by 0.8% over five days, or a -58% annual rate. My options positons produced a 77.7% loss on debit, for a -5,674% annual rate.

The Powershares QQQ Trust Series 1 exchange-traded fund (QQQ), which tracks the NASDAQ-100 index, broke above its 20-day price channel on Thursday and confirmed the bull signal on Friday.

QQQ has completed four bull signals over the past year, all of them profitable, with an average yield of 2.8% over 45 days. Those historical odds make QQQ a prospective directional play.

I shall use the MAY1 series of options, which trades for the last time seven days hence, on May 1

The goal of my trades is to construct direction-neutral positions with a zone of profitability at expiration covering all of the one standard deviation range implied by volatility and options pricing, or the 30-day hourly chart support and resistance range, whichever is wider.

[NASDAQ-100 in Wikipedia]



Click on chart to enlarge.
QQQ at 10:45 a.m. New York time, 30 days hourly bars
Implied volatility stands at 14.2%, which is 1.1 times the VIX, a measure of volatility of the S&P 500 index. QQQ’s volatility stands in the 20th percentile of its most recent rise.

The chart high set on Thursday, $110.40, was the highest price attained by QQQ since March 2000, when the high was $120.50. On Friday QQQ broke decisively above its high from the day before, leaving the 2000 high as the only resistance level on the chart.

Fifteen-year-old resistance is far too weak to be significant, in my opinion. Most money left on the table from that time has surely taken the loss on moved on to greener fields. So, in essence, QQQ is a chart without resistance.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%Chart
Implied volatility 1 and 2 standard deviations; chart support and resistance

The Trade

As is often the case with directional trades, I've had to accept a lower probability of the position expiring out of the money for maximum profit in return for no boundary on the profit zone in the direction of the trade.

Given the nature of QQQ's chart, it seems like a good trade. The logic of it is that if I'm going to place a directional trade, then my assumption must be that there is a strong likelihood that the price will move in that direction. Otherwise, my analysis is wrong and I should be placing the trade.

Bull put spread, short the $110 puts and long the $108 puts
sold for a credit and expiring May 2
Probability of expiring out-of-the-money


The risk/reward ratio stands at 3.5:1. The premium is $0.44, with shares trading at $110.31.

Decision for My Account

I've opened a bull positon in QQQ as described above.

-- Tim Bovee, Portland, Oregon, April 24, 2015


My volatility trading rules can be read here.


Two social media feeds provide notification whenever something new is posted.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at

No comments:

Post a Comment