New Trade Alert for (QQQ)
Buy PowerShares QQQ September $130 Call @$8.75 or less
Risk Rating: 3.75 (1 = lowest 5 = highest)
Above Break Even Probability: 47%
Max Loss Probability: 23%
TECH BEND OF TREND
Gravity…the straight up 2017 rally run in the tech giants of Amazon, Apple, Facebook, and Google HAD TO have some unwind at some time. The top stocks had jumped 25 and 30 percent by June.
New record highs were seemingly a daily occurrence in the Nasdaq with the top 100 tech stocks trending straight up.
The snap back potential has the reward to risk in favor of the bulls after backing off.
EVERY SINGLE SELLOFF IN HISTORY HAS COME BACK
The BIG BOYS of Apple, Microsoft, Facebook, Amazon, and Google account for 40% of the weighting in the QQQ index. This pullback in these OUT performers can be positioned with QQQ PowerShares for a second chance charge.
QQQ pause has trade tracking from $130 to $144 with this halfway support at $137 to lean on on a weekly basis.
It has been foolish historically to think the top is in …money flows can quickly move back into Tech.
The larger technical objective is $150 on a full “V” recovery and rally the distance of this latest downturn on top of the old highs.
The September option has two and a half months for Bullish development.
An In-The-Money option gives you the right to be long from a lower strike price and it costs much less than the ETF share itself.
The Options Way: Unlimited Upside Potential with Limited Risk.
A QQQ PowerShares long call option can provide the staying power in a potentially larger trend extension. More importantly, the maximum risk is the premium paid.
One major advantage of using long options instead of buying or selling shares is putting up much less money to control 100 shares, that’s the power of leverage.
Choosing an option can sometimes be a daunting task with all of the choices and expiration months. Simply put, traders want to buy a high probability option that has enough time to be right.
The option strike price is the level at which you have the right to buy without any obligation to do so. In reality, you rarely convert the option into shares. Simply sell the option you bought to exit the trade for a gain or loss.
There are two rules options traders need to follow to be successful.
Rule One: Choose an option with 70%-plus probability. The Delta is a measurement of how well the option reacts to movement in the underlying security. It is also important to buy options that payoff from only a modest price move.
There is no need to ONLY make money on the all but infrequent long shot price explosions.
Good Options can profit from just modest directional moves.
Any trade has a fifty/fifty chance of success. Buying In The Money options increase that probability. That Delta also approximates the odds that the option will be In The Money at expiration.
Buying better options are more expensive, but they are worth it. The chances of success are mathematically superior to buying cheap, long shot Out Of The Money lottery tickets that rarely ever pay off.
With QQQ trading at $136.75, for example, an In The Money $130 strike option currently has $6.75 in real or intrinsic value. The remainder of any premium is the time value of the option.
Rule Two: Buy more time until expiration than you may need — time for the trade to develop. Time is an investor’s greatest asset when you have completely limited the exposure risks.
Traders often buy too little time for the trade to develop. Nothing is more frustrating than being right, but only after the option has expired premature to the market move.
Trade Setup: I recommend the QQQ September $130 Call at $8.75 or less.
Notice the $130 strike is at a level of SUPPER SUPPORT.
An option play also has staying power with the ability to ride through Ups and Downs that would force most stock traders out of the position.
The option also behaves much like the underlying stock with much less money tied up in the investment. The Delta of this $130 strike is 75. That also approximates the probability that the option will be in the money at expiration.
The September option has two and a half months for bullish development.
The maximum loss is limited to the $875 or less paid per option contract with an exit stop loss at half the option premium to reduce dollar exposure. The upside, on the other hand, is unlimited.
The QQQ option trade break even is $138.75 at expiration ($130 strike plus $8.75 or less option premium). That is two dollars above the QQQ current price.
A full “V” recovery to the old highs targets a technical move to $150. That would put the option value at $20.00 to more than double the original investment.