$1000 in 1 day on Nasdaq (QQQQ) call options
Tony Parker - a regular contributor and experienced investor - is calling the bottom of the market. To quote what Tony said late last week: "Either today (Friday) or Monday will signify the bottom for the stock market...time to buy, buy, buy...and make some money in the process". He has put $1000 of his own money to purchase QQQQ (Nasdaq Index ETF) Dec 35 call options - believing the bottom of the market is at hand and to profit from the short term jump in share prices expected. His logic is that the blood letting on the street has run its course and that because the QQQQ ETF has few significant financial companies in its index, it should rebound much faster. He is kindly agreed to share this trade (amongst other he made) with readers to Saving to Invest.
He was right and today's 11% rise in the Nasdaq meant he more than doubled his money in 1 business day! Confirmation of the trade purchase and close is shown in the above graphic (click it to enlarge). Options are not for the new investor and carry inherent risk. However, using them to play the volatility can result in some spectacular gains (or losses) at times. As Tony said, "if you are a long term investor hold on to your assets and with the bottom close at hand, you should see some reasonable appreciation. However if you want to make some quick money in this market and understand options well then you gotta trade the volatility." Options are the best way to do this and look for his post on the basics of options to be published later this week. He has also agreed to reinvest the profits from this trade into future ones and share the results with readers of this site, so stay tuned [consider a free subscription to ensure you don't miss an article].
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October 14, 2008 10:35 AM
The financial media has been calling the bottom month after month and have lost a lot of credibility for being consistently wrong.
We are far from the bottom. At this point stocks cannot adequately be priced because nobody knows how much the consumer is actually going to cut back, which will determine future earnings. Last quarter earnings cannot be trusted to price stocks, because future earning maybe a lot lower. So, when they say you should buy because the E/P ratio is very good, they are talking about yesterdays E/P.
Stocks are probably still way over priced, but it may take a quarter or two to adjust the E/P ratios before stocks can be prices accurately. A good strategy is to sell into the rally days like yesterday.
October 15, 2008 4:06 PM
I totally disagree with your comments about options. If you want to play with a 1000 on QQQQ , then you are essentially going to the poker table. Options should NOT be used by anyone who does not have 6 ( or 9 ) months of liquid reserves stashed away . Also he / she should be prepared to see every one of his 1000 wiped out completely - as often happens amongst amateurs.
There's an old saying to remember -When Elephants make love, the grass gets crushed. These days, when even the big elephants on Wall St. are getting crushed, one should be very, very careful.
Keep up the good work. You write well and your posts are usually insightful
October 16, 2008 2:48 PM
I actually agree with GB that this one day profit is highly speculative. You know how there are all of these studies showing how actuve mutual fund market timers tend to underperform the broad stock market indexes.. For options and futures traders the survival ratio is about 5% after 1-3 years of active trading. In other words 95% of new options and futures traders are wiped out over time..
Just because your friend doubled his money on one trade doesn't mean he does that every day. Unless we see several years worth of activity then I would continue to be skeptical of such one day results..
Best Regards,
Dividend Growth Investor