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Nasdaq Comp 10k and Ways to Fade in QQQ (for those inclined)
3 min read

Nasdaq Comp 10k and Ways to Fade in QQQ (for those inclined)

Nasdaq Comp 10k and Ways to Fade in QQQ (for those inclined)

Overview

  • Nasdaq at 10k
  • Ways to Fade?

The Nasdaq comp is making headlines the past 2 days as it crossed 10k for the first time ever. Obviously the rally from the Covid lows was initially powered by the usual suspects, GOOGL, AMZN, MSFT, FB, AAPL etc. But more recently we've started to see a bit of mania as some stocks are making questionable sqeezues higher. If you were looking to fade this rally at this big round number, how would you with defined risk?

The Set-Up

Here's the 1 year chart in QQQ from OptionsAI technology, we'll then zoom in a little closer to look at trades:

Ways to Play

Zooming in at 3 month and 1 month and selecting a bearish target:

Here's a look at those trades, targeting the bearish expected move for July 17th expiration:

The way to think about those two spreads, one buying a put spread, the other selling a call spread depends on how bearish you are. Is this a play for a quick pullback? In that case the long put spread makes sense. Or is this simply a play that the market tires out here? In that case, the selling of the call spread is the play as it leaves a little room for the market to go higher. Here's how those two breakevens look on the chart. First, buying the 243/230 put spread, with a breakeven of $238.88 (QQQ needs to be below that level to make money at expiration):

And the short 243/256 call spread, with a breakeven of 248.59 (any close below that level on expiration and this trade makes money):

Obviously those are two different ways to skin the cat, and which one depends on your view of what's about to happen next. The risk/reward on both trades is decent, and realistic. The long put spread playing for a sharp pullback wouldn't need much of a move to breakeven. And on the short call spread, even if the market continued higher the trade is fairly safe for a bit of room. It would only blow-up if the entire market went ballistic higher, which isn't out of the realm of possibility of course, but for those looking at 10k as a headline grabbing temporary top it's a high odds fade.

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

Previously:

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