arrow-left arrow-right brightness-2 chevron-left chevron-right circle-half-full facebook-box facebook loader magnify menu-down rss-box star twitter-box twitter white-balance-sunny window-close
Eye on ETFs - QQQ, IWM, DIA expected moves and ways to play in SPY.
3 min read

Eye on ETFs - QQQ, IWM, DIA expected moves and ways to play in SPY.

Eye on ETFs - QQQ, IWM, DIA expected moves and ways to play in SPY.

Overview

  • The Nasdaq Composite made headlines last week as it became the first of the major US indices to go green on the year.
  • Checking in on the QQQ (Nasdaq 100) and other market/sector ETFs and some ways to play.

Checking in on the major indices, here are the 3 month expected move charts for the SPY (S&P 500), QQQ (Nasdaq 100), DIA (Dow 30) and IWM (Russell 2000). SPY shows the smallest expected move ~9% with DIA and QQQ around 10% and IWM the largest at ~12%.

From OptionsAI Technology:

The Set Up

The QQQ has the advantage of the major indices in that it is extremely tech heavy with some of its biggest components at or near their highs. Even the SPY has benefited from the heavy concentration of Amazon, Microsoft, Apple, Facebook and Google with some now referring to its rally as the S&P 5. Zeroing in on the SPY, we know the VIX is back below 30 and that could signal some complacency as the index approaches the big round number of 3000.

For those looking to fade the SPY and play for a pullback (outright and short term) it makes sense to target the bearish consensus in the next month or so. Here's a price target of ~$277 for June 19th expiration, a sell in May and go away play:

The outright put gives the advantage of unlimited gains if the market gets hit hard. It is pure vega that would take advantage of a spike higher in the VIX on a selloff as well. However, it's expensive compared to the spreads and if the market goes slowly higher it would decay quickly as there's just a month time horizon. The put spread greatly reduces the cost (and probability) and specifically targets a realistic pull back level.

The credit call spread is especially interesting in that it offers the advantage of optionality. For those simply looking to fade this move higher its something to consider. Here's a chart that helps explain:

The breakeven is right at $300 in the SPY:

That's the big round number of SPX 3000 which many would see as resistance. Any close below that would be a small profit on this trade and anything lower than where the SPY is now would mean a max gain. This is an interesting trade to consider for those thinking a rally may be close to losing its steam. Even if the market went slightly higher, it has room built it. Against long stock portfolios this is an interesting trade because it acts somewhat like a portfolio over-write, and could add yield with defined risk.

For those looking for portfolio hedges targeting alot lower, but farther out, here's a target for later this summer, from OptionsAI technology, ~$256 in August:

This is straight long premium and looking for the most bang for the buck on a serious market pullback. The two put spreads are different in that one buys the at the money Aug 293 put and sells the Aug 256, and the other buys the 269 put at the expected move, and sells the 256. That second put spread is dollar cheap, but obviously a much lower probability. It's essentially a tail risk spread protecting against disaster, whereas the at the money put spread kicks in much sooner on a much more normal (and realistic) pullback.

See a part of OptionsAI technology with your own price target and demo trades in AAPL HERE

Actionable Insights from the Options Market

Earnings event expected moves
Unusual activity alerts
Spread trade education

Broker Dealer (FINRA Registered)

Built for one-tap spread trading
No chains. No per contract fees.
Powered by OptionsAI technology (Patent Pending)