Welcome to Extreme Investor Network, where we provide unique and valuable insights into the world of investing. In today’s blog post, we will be discussing the recent all-time highs in the major averages driven by renewed optimism after a slightly cooler-than-expected inflationary report.
Despite the uncertainty surrounding Federal Reserve policy, investors are remaining positive and optimistic about a potential “soft-landing”. However, it’s always prudent to be prepared for any market fluctuations. This is why we recommend implementing a hedge, and we want to focus on the Invesco QQQ Trust (QQQ) tracking the Nasdaq 100.
The tech-heavy Nasdaq 100 has more beta than the S&P 500, making it a potential candidate for increasing rewards if a downside protective trade pays off. With volatility being a key player in market movements, it’s important to consider implementing a strategy that can help mitigate risk.
Using technical analysis to guide our strike prices, we suggest looking at the $437 level in the QQQs as the 50-day moving average, with the 200-day moving average sitting closer to $400. While we don’t foresee a scenario where the 200-day average is violated short-term, a test of the 50-day metric is plausible.
Our trade recommendation involves buying the 6/28/24 $437 put for $3.50 and selling the 6/28/2024 $420 put for $1.45. This creates a debit spread with a total cost of $2.05 or $205 per one lot spread. In the event that the Nasdaq 100 continues to reach new all-time highs, this spread will expire worthless. However, the cost of this hedge can be covered by the exposure you have in your portfolio.
Just remember, insurance always comes with a cost. By buying put spreads in the QQQ, we are able to defer some of the cost in owning it by selling the $420 put. It’s all about finding the right balance between risk and reward in your portfolio.
As always, it’s important to remember that the information provided in this blog post is for informational purposes only and should not be considered financial, investment, tax, or legal advice. Before making any financial decisions, we strongly recommend seeking advice from your own financial or investment advisor.
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