QQQ Analysis

Update 9/9/2015: The cost of exiting my QQQ iron condor declined to 10 cents. At that point, I normally gather up my profits and head for the egress in order to eliminate the remaining time risk.

Shares rose by 0.6% over 19 days for  a 12% annual rate. The options position produced a 360.0% yield on debit, for a +6,916% annual rate.

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The Nasdaq 100 index exchange traded fund (QQQ) closed below its 20-day price channel on Thursday and continued to trade lower on Friday. The symbol has low historical odds of a bear signal producing a profit, making it a candidate for a non-directional trade.

[QQQ in Wikipedia]

QQQ

I shall use the SEP series of options, which trades for the last time 28 days hence, on Sept. 18.

Odds

QQQ has completed four bear signals in the past year, all of them unsuccessful. On average they lost 1.9% over 31 days.

Ranges

Click on chart to enlarge.

QQQ at 11:49 a.m. New York time, 180 days 4-hour bars

Implied volatility stands at 27, which is 1.1 times the VIX, a measure of volatility of the S&P 500 index. QQQ’s volatility stands at the peak of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	112.26	120.01	114.39	N/A
Lower	96.78	89.03	99.36	N/A
Gain/loss	7.4%	14.8%

Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move
The Trade

Iron condor, short the $114 calls and long the $111 calls,
short the $94 puts and long the $91 puts,
sold for a credit and expiring Sept. 19.
Probability of expiring out-of-the-money

SEP	Strike	OTM
Upper	111	87.7%
Lower	94	86.6%

The premium is $0.46, which is 15% of the width of the position’s wings.The stock at the time of purchase was priced at $104.79.

The risk/reward ratio is 5.5.

The zone of profit in the proposed trade covers a $3.50 move either way, or 2.2 times the average true daily range.

Decision for My Account

I've opened a position on QQQ as described above.

-- Tim Bovee, Portland, Oregon, Aug. 21, 2015

References

My volatility trading rules can be read here.


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Disclaimer

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.

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Based on a work at www.timbovee.com.