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How to Score Quick Profits Out of This NASDAQ Rally

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How to Score Quick Profits Out of This NASDAQ Rally

The NASDAQ has been out of control lately but in a good way. If you’re like me and you didn’t get your Economic Injury Disaster Loan (EIDL) from the Small Business Association (SBA), you could have still pulled a bit of the Fed’s stimulus money out of the stock market. You see, everybody else’s EIDL has been pumping up the price of NASDAQ stocks for a few weeks now. Go Fed.

Source: Business Insider — President Donald Trump side-eyeing Fed Chairman Jerome Powell

The problem is that no one knows when this insane rally will end. No one wants to be the one left buying at the top and holding the bag. At the same time, no risk, no reward. Scared money doesn’t make money. Put up or shut up.

Nothing is for sure in the stock market, especially in the modern market of flash crashes. (Here’s a market lingo joke I just thought of. The stock market has so many bubbles, it’s no wonder so many traders are taking a bath.) Jokes aside, you should rely on your broker to provide you with tools to monitor market activity. If you have good tools, you can analyze and play off of a market hypothesis. You don't have to be perfect. All you have to be is smarter than the biggest dummy.

Take a look at a couple of fairly conservative strategies you can implement in today’s market without frying your nervous system.

Selling Out of the Money Calls

When a market is moving directionally, selling out of the money (OTM) options is a great way to cash in and leave yourself a cushion to be wrong. For instance:

Apple (NASDAQ: AAPL) has been on rocket boosters and is now trading at $440. You are ok owning it at $400, but you don’t want to buy any more at $440. If you sell puts with a strike price of $400, you profit if AAPL continues to rise. But here’s the cool part — if you’re wrong about the direction and AAPL falls to $430 at the option expiration date, you STILL profit.

The problem with OTM calls is that they can be expensive. Any profit you make on that AAPL trade could be eaten up by the broker commission fees — unless you are trading on Webull. Webull offers $0 options contracts and commissions, leaving you with plenty of room to rake in your winnings without paying the middleman.

(If you need help on the terms I used in this example, be sure to check out Benzinga’s options trading course.)

Investing in an Index

Sophisticated traders will never answer the newbie question, “Got any good stocks?” Profitable traders know the way to success is to play with ranges and probabilities. Betting on the up or down movement of an individual stock at any given time is just gambling. Don’t ever let past performance fool you into thinking the future will go the same way. The market is set up to make as many people wrong as possible. If you are a beginner, the way to avoid the volatile swings of individual stocks is to instantly diversify through index holdings. If you want to bet on the NASDAQ, you can bet on the entire thing through an exchange-traded fund (ETF) like the PowerShares QQQ Trust, Series 1 (NASDAQ: QQQ). You gain instant exposure to the entire index, which moves a bit more smoothly than any 1 stock within it.

 

This is also an easy trade with Webull. ETFs trade like stocks even though they represent a basket of stocks. All you do is pull up the QQQ ticker symbol in your Webull interface, set your amount, and you have instant diversification.

 

Scalping

Scalping a trade involves taking just a little bit of profit off of the top. You buy naked calls if you think the stock will rise or naked puts if you think the stock will fall. Whether the market moves with your trade or against you, you are out of the trade in seconds on its next move. Some traders may tell you that scalping is dangerous, but only under certain conditions. Here are the rules for beginner scalpers:

  • Do not use margin.
  • Use only 1% of your trading account per trade.
  • Do not get greedy and stay in a trade beyond the first move.
  • Cut losses immediately.
  • Set the amount you are willing to lose daily and stop trading if you lose that amount.

With 0% commissions on options, Webull makes scalping a viable option even for those with small accounts.

 

If you think that I’m biased towards Webull in certain trading situations, it’s true. Your broker should match your trading personality. If you’re a new trader with an interest in options, Webull is a great platform to get started on. It certainly helps that you don’t have to pay your broker to learn the tool - 0% options is not an automatic feature for many top brokers!

 

 

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Posted-In: Options Opinion Markets