Stocks Trading Tips - Trade Crests and Troughs

Where The Stock Market is Today
Issued January 27th, 2009

NASDAQ Composite Tradable Crests and Troughs
January 27th, 2009: the market has been confirmed to be downtrend. This trend has not changed yet and until the price say otherwise, we remain bearish. We currently have open downside positions of puts, short QQQQ stock position and Calendar Spreads to the downside which is rolled over every time both legs get "on money". The current stop loss is 1665.63 to the NASDAQ Composite.
January 27th, 2009: If you look at the Williams chart and the Crest chart below, a strong enough crest has formed and the ideal situation is to open positions to the downside above the crest critical price of 1513.21

January 28th, 2009: The NASDAQ Composite manage to get a high of 1568.33 and we get filled at between 1513.21 and 1568.33.

We would trade QQQQ Power Shares and not Nasdaq Composite. But we have found out that to make the best use of QQQQ Power Shares crests and troughs, we make good profits when we trade the QQQQ options. Below is an example of trades we made on January 28th, 2009 using the QQQQ options. Depending on the strength of the money you have and the money you want to spend on such trades, you can choose different multiples of the options used here. we have used multiples of two in this trade. You can use multiples of 4, 6, 8. 10, 12, 14, 16, 18, 20, and so on and so forth.

We sold short 2 March 2009 strike 30 call options, Sold short 2 March 2009 strike 27 put options and bought long 3 September 2009 strike 27 put options. We did this because we believed the market is in a downward trend.

For your information,

1. These options cost $200.50.

2. The options had a delta of -159 which meant that if the QQQQ moved $1 in price downward, we would make $159 in profit, and we would lose $159 if QQQQ moved $1 upward.

3. The options had a theta of $3.8 which meant that we would make $3.8 dollars per day if the QQQQ stock moved nowhere - and this happens more often than not, and that is where the juice is for these trades.

4. These options had a Vega of $9.6 which means we would gain $9.6 dollars if the implied volatility increased by 1%. Implied volatility will always increase if the underlying stock moves downward. The opposite is also true.

5. The two short options required a margin, which is cash or the equivalent in stock assets equal to $1180 which was reserved by our stock brokers in such a way we could not use it in as long as we continued to hold the two short positions. If we had used a multiple of 20 which is 20 short calls, we would have needed a margin of $11,800.

6. The automatic stop loss has to be in place in your stock brokers' books. It is the only thing you monitor in every stock market day. It should not take you more than a minute, but monitor it every day because its the most important stocks trading tip you can ever have.

7. The uncovered short selling should never ever be attempted on individual stocks but on ETFs. Why? Because you can one day find yourself in unexpected loss.

Where The Stock Market is Today,

Issued February 19th, 2009

NASDAQ Composite Tradable Crests and Troughs

February 19th, 2009: If you look at the Williams chart and the Troughs chart below, a strong enough Trough has formed and the ideal situation is to close positions to the downside below the trough critical price of 1442.53

February 20th, 2009: The low of 1416.96 on Nasdaq composite is obtained and it has been easy to close the option positions at between 1442.53 and 1416.96.

We are at the bottom of a trough and this is not the end of the downtrend as the current stop loss point is way up at 1598.50. But we have made some profits and its time to lock some profits because you never know with tomorrow.

The options that cost $200.50 are now worthy $515.50 as on 19th February, 2009. There is a profit of $315 to put back into our account as cash profit. If we had used a multiple of 20 we would have bought options worth $2005.00 and we would have gotten a profit of $3150.00 as profit. But different people have different means.

But the combinations of the options look as if it would yield better results than when we initially put up the trades. Why then should we close this trade? It is because we want to lock some profits and because the March options are getting closer to expiration and if anything goes wrong we would not have a second chance to repair it.

The idea here is to buy to close the March options and sell to open the April options thus making total option cost to about $200 again.

February 20th, 2009: Stop Loss/breakout to upside = NASDAQ Composite trading above 1598.50.