When To Buy And Sell? Can QQQ Answer That Question
I love Amazon, but my wife loves it even more. Those brown cardboard boxes with the black prime tape seem to be on my doorstep every afternoon. And we aren’t the only household to love the tech company, according to CNN there are now 100 million prime members in the U.S. That means 1 in 3 of the people you know are likely to be enjoying the free two-day shipping as much as my wife and I are.
Amazon (Nasdaq: AMZN) makes up about 10% of the Nasdaq which is hitting new all-time highs, for the third time this year. Back in early February, when markets were seemingly bulletproof, QQQ the Nasdaq tracking ETF hit an all-time high of $170.95, then within a matter of days fell 10% to $153.45. Not to be outdone, in March, QQQ hit another all-time high of $174.48 and subsequently fell nearly 12% to $153.88 by the time April started.
As of the market close on June 5, 2018, QQQ was $174.84. Does the Nasdaq finally have the strength to push through this perceived resistance? There’s a high probability option trade that one could make no matter if you believe that the Nasdaq has a full head of steam or if you feel that the “chips are gonna fall.”
If you’re ready to sell high to buy back low, the July 179/180 call spread may be right for you. The 179 call has a delta of 30, meaning it has a 30% probability of being in the money at expiration (70% probability of profit) and by buying the 180 call, you’re limiting your risk if QQQ does continue to climb. By taking in a credit of 32 cents per share on the trade, the breakeven is at $179.32 (2.6% above the current price) and the max risk in the trade is only $68.
But if you believe it’s different this time, the July 171/170 put spread at the 31 delta has a 69% probability of profit and a breakeven price of $170.75 (2.3% below the current price) because of the 25 cents in credit taken in upon order entry. This trade has a total risk of only $75.
So whether you’re bullish big tech or bearish brown boxes, with options, you can structure a high probability trade to take advantage of any market direction.
Christopher M. Uhl, CMA of 10minutestocktrader.com
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