Options trading can be stressful if you are only focusing on individual stocks as an options trader. Lord knows I’ve taken my worst beatings by gambling on risky options plays right before earnings!
A more conservative and potentially profitable strategy is to bet for or against the entire NASDAQ market using the Invesco QQQ Trust ETF (NASDAQ: QQQ).
The QQQ tracks most of the biggest NASDAQ traded companies such as:
- Apple (AAPL
- Tesla (TSLA)
- Nvidia (NVDA)
Whenever the NASDAQ gains or falls, the QQQ tracks the NASDAQ movement extremely close. That’s why I like swing trading QQQ options or making day trades depending on market sentiment, breaking news, oversold, and overbought situations.
1. Focus on QQQ Options Expiring At Least 2 Days in Advance
There are times when you can gamble on Robinhood with QQQ puts or calls expiring the same day but that ends up as a recipe for disaster over the long run.
I prefer buying puts or calls that expire at least 2 days in advance to give myself time for my play to bear fruits.
Sometimes, I will trade QQQ options expiring at the end of the month to give myself plenty of time for the contracts to move in line with my overall thesis.
2. Determine Your Position Sizing and $$$ Invested
I normally try to stay under 10% of my overall portfolio n one position to avoid blowing up my entire trading account. Taking a 10% loss won’t ruin your trading career but the wrong all-in bet will.
3. Use the QQQ Daily and Weekly Chart to Determine Market Sentiment
I use Traderingview’s daily and weekly hart to figure out which way the market is heading over the next few weeks. It also helps to track the Buffett Indicator to determine if the NASDAQ is trading at unsustainable valuations.
4. Use the QQQ 1-Hour Chart to Determine Your Entry and Exit
I use Tradingview’s 1 Hour Chart to find the best setup using the Relative Strength Index (RSI) as my guide.
I’m looking to buy calls when the RSI dips near 30 on the hourly chart and sell them as the RSI approaches 70.
If I’m trading puts then I will buy puts when the RSI approaches 70 and close my position once the RSI taps 30 or aggressively reverses in direction.
5. Don’t Be Afraid to Take Profits
The market is an emotional beast and can flip in a moment’s notice. There’s nothing wong with taking profits if you are up 25% to even 50% on the QQQ. You can always reenter your trade and buy the option intraday or later in the week at a cheaper price.
Options settle the next business day so you don’t have to wait long to access your capital and trade again.
6. Use Stop Loss Orders to Avoid Getting Wiped Out
One of the things I’m working on is using stop losses to exit a bad trade.
7. Keep Doing What Works
Review your QQQ options trades after market close to see what works or upload them to a good trading journal software tool for tracking purposes.