DailyPlay – Opening Trade (QQQ) – March 23, 2023

QQQ Bearish Opening Trade Signal

View QQQ Trade

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish

Details: Buy to Open 7 Contracts April 6th Put Vertical Spreads @ $2.86 Debit per contract.

Total Risk: This trade has a max risk of $2.002 (7 Contracts x $286) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $286 to select the # contracts for your portfolio.

Counter Trend Signal: This ETF has reached a resistance level and is expected to pull back from recent gains.

1M/6M Trends:Bullish/Bullish

Technical Score: 9/10

OptionsPlay Score: 142

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Wednesday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

An eerily quiet immediate reaction to the Fed rate hike and early Powell press conference turned into an ugly close to the day, as the final hour saw a constant stream of selling that took the SPX down 66 pts. (1.65%) to 3937. No one said trading was an easy game, and after a good bounce from 3864 just two weeks ago it’s actually no surprise that we saw a pullback to make buyers from this week second guess themselves. A close, interestingly, right on the flat 200-DMA.

SPX – Daily

Was there anything good about yesterday’s SPX price action? Well, the down close means that if we see a close today above 3985 (the daily Propulsion Momentum level) it would be qualified, meaning that a higher open/higher high/higher close on Friday would get a fresh buy signal – targeting near the early Feb. highs and a move back to the high end of the trading range.   

Yesterday, as instructed in the Daily Play, we were able to get out of the long TLT call spread at the same price we put it on at (i.e., $2.20). This was not because I don’t think interest rates are headed lower (i.e., I think they will), but because I make it a blanket rule for myself that when trading options – if I have a 50% profit on a position – I stop myself out at breakeven.

With our LYFT short $9 put, we are up about 60%. If tomorrow the put is trading beneath a 50% profit going into the closing bell, buy back one of two puts.

A new idea: Yesterday’s rally and lousy close gives us a defined risk level for a bearish QQQ trade, as Wednesday’s high was right at its Propulsion Exhaustion level, and the +13 signal from a week ago Wednesday is still in effect. As such, let’s look to buy an April 6th $305/$295 put spread for what was marked yesterday at $2.855 mid, or about 29% of the spread differential. I am purposely choosing a short-dated option to play for some attempt towards the blue rectangle support zone, which includes the bearish Propulsion Momentum level; unfilled close to low gap; and the uptrend line from the January low to occur shortly after the double-top just made against the Feb. high. Stop yourself out on any daily close above yesterday’s high (i.e., don’t wait for me to tell you to get out the next day).

QQQ – Daily