qqq trading strategy

Learn this QQQ options trading system if you want to gain exposure to NASDAQ 100 stocks. The Invesco QQQ Trust (QQQ) is one of the best ways for traders to gain diversified access to the growing tech sector. Between investing with index ETF and QQQ trading strategy we chose the second. Throughout this trading guide, you’ll also learn our QQQ swing trading system that has low drawdown.

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The coronavirus stock market fallout has spawned many rare investment opportunities. The QQQ that tracks the NASDAQ 100 stocks can be used by investors for both defensive and growth trading opportunities.

The unique blend of opportunities for growth and protection is due to the fact QQQ holds stocks that can benefit from this market turmoil caused by the COVID-19. The QQQ stocks have a very strong balance sheet, are very liquid which means that they come out as the winners of this stock market recession. Learn how to trade stocks in a recession.

If you’re a long term investor, QQQ ETF is an ideal buy and hold.

However, the QQQ volatility also creates opportunities for short-term traders, which is what we're going to focus on.

Let’s kick things off by defining what is the QQQ ETF, how QQQ options trading works, and last but not least, we’ll share our proprietary QQQ options trading system.

What is QQQ Trading?

Invesco QQQ is an Exchange-traded fund (ETF) that tracks the NASDAQ 100 stock index. In other words, QQQ tries to replicate the performance of the stock index NASDAQ-100. Along with the SPY, the QQQ is one of the most popular Exchange Traded Funds and the second most-heavily traded ETF.

Learn what are the best ETFs to day trade and how do they work.

Here are some of the key characteristics of the QQQ:

  • The current dividend yield of Invesco QQQ is 0.60 percent (as of 2 October 2020).
  • An expense ratio of 0.20 percent.
  • QQQ’s average daily traded volume is $5.86 million.

Since the NASDAQ 100 is composed of the 100 world’s largest companies, QQQ offers stock investors the chance to gain exposure to large-cap technology companies.

QQQ’s sector allocation focuses on the following industries (as of June 30, 2020):

  • Information technology: 48.24 percent.
  • Communication services 19.67 percent.
  • Consumer discretionary: 17.06 percent.
  • Health care: 7.23 percent.
  • Consumer staples: 4.88 percent.
  • Industrials and utilities: 2.66 percent.

qqq options trading system

As you can tell the information technology and communication services sectors are close to 70% of the total allocation. It’s no surprise that the top stock holdings of QQQ are Microsoft Corp, Apple Inc, Amazon.com Inc, Alphabeth Inc, and Facebook.

Here is an interesting fact about investing in QQQ:

From 2010 to the end of 2019, if you invested $10,000 in QQQ you would have had $51,465 at the end of 2019.

See the growth of your $10,000 invested in QQQ in the chart below:

qqq options trading

Obviously, with the 2020 market turmoil caused by the coronavirus pandemic, QQQ is under-performing. However, the current market conditions can also create a good opportunity to buy QQQ.

Now, if we check how our $10,000 investment in QQQ will look like after going through the COVID-19 market turmoil, we can see that the same investment would be worth $64,210 based on data collected as of 30 June 2020.

qqq trading strategy

With this in mind, let’s move on and see:

What are the advantages of QQQ options trading?

See below:

Why trade QQQ ETF Options?

QQQ trading has advantages and disadvantages, but the pros are far more significant the cons.

To begin with, QQQ is one of the most traded ETFs. High trading volumes result in high liquidity and many opportunities for positive gains.

The QQQ fund has an active options trading strategy market with multiple expirations and strikes for both calls and puts. This is good news for the QQQ options traders as it gives them the flexibility to use different QQQ options trading strategies.

Trading QQQ Exchange-traded fund (ETF) via options has the following advantages:

  • Typically low transaction fees.
  • QQQ ETF is listed on exchanges the same as stocks.
  • Transparent pricing.
  • Tax-efficient.
  • Good for short-term trading and swing trading options.

Before you start using the QQQ options trading system make sure you take into consideration all these benefits.

Moving forward, we’re going to show you how to use the QQQ options trading system and how to hedge your risk with the QQQ ETF.

How to use the QQQ Options Trading System

Here is our checklist for QQQ put and calls options:

  • Select strike price with an open interest of at least 1000.
  • Select Weekly and monthly expiration dates.
  • Option premium of at least $0.35.
  • Buy in-the-money options ITM.
  • QQQ option delta between 0.40 and 0.60 for weekly options and delta bigger than 0.50 for monthly options.
  • Bid/Ask spread less than $0.06 for weekly options and $0.10 for weekly options.

When we used the above options trade checklist along with the power of futures leverage that comes with options trading makes the QQQ options trading system.

Let’s consider the following QQQ trade example:

  • Today’s QQQ price is at 200.
  • 10 days from today the QQQ price has rallied to 210; $10 or a 5 percent increase.
  • The weekly 205 strike call option premium cost is $0.80 per share or $80 per contract. 10 days from today, the bid premium when you want to sell is $3.50 per share or $350 per contract. This is a 337.5 percent gain in 10 days.
  • So, here we have a price move 5 percent gain versus 337.5% gain.
  • If we have bought 100 shares of QQQ ETF the total investment would have been $20,000 and it earned a profit of $1,000. Or, a total investment of $80 per contract for one option (which covers 100 shares worth of stock) would have earned a profit of $270. Now, for the same $20,000 investment, you could have bought 250 options contracts and earn $67,500.

This gives you an idea of how the average trader's income can increase by trading QQQ options and earn 100s more than by directly invest in the stock market. The options leverage is definitely a game-changer.

We’re going to review our powerful QQQ swing trading system along with an unorthodox twist.

QQQ Swing Trading System

We’re going to lay down a step-by-step action plan on how to trade using the QQQ swing trading system. As we have discussed before, there are many known benefits of using a mid-term swing trading strategy. This swing trading strategy has the potential to give you the steady profits that you need.

If you want to transform your dreams into reality, you need a solid plan of action.

The QQQ swing trading signals are based on the following the top technical indicators:

Note* The ADX and MACD are two unrelated technical indicators, but when we combine them we can produce exceptional returns.

qqq swing trading system

Note* we’re using the FREE stock charts from Tradingview.com.

We use the ADX indicator to measure the QQQ trend strength regardless of the trend direction. To complete our QQQ swing trading strategy, we’ll add to the chart the MACD indicator.

You can notice that both the ADX and MACD run pretty much in tandem. However, when the two technical indicators diverge, explosive trades can emerge out of this signal. But, you need to be aware that these divergences are very subtle.

When the MACD and ADX show divergence a reversal in the QQQ price will follow in at least 85 percent of the cases.

See the QQQ chart below:

qqq options trading system

Because of the subtle nature of the ADX and MACD divergences, it’s crucial that you confirm your entries with key technical swing levels.

The combination of these two trading principles will give you a powerful QQQ swing trading system.

Here is how it works in practice:

To better visualize the QQQ trading signals, we’re going to teach you an unorthodox trick. Instead of using only one instance of the ADX indicator, we’re going to use two instances of the ADX indicator at the top and at the bottom with the MACD indicator in the middle.

See the QQQ price chart below:

qqq options trading

Note* we can hide the MACD histogram since we’re not going to use it.

Moving on…

We’re going to reveal a systematic approach to make instant profits trading QQQ.

We know we said that once we have a divergence between the two technical indicators a QQQ trend reversal can happen. And, that is true. However, these QQQ trading signals are very subtle and it’s very hard to see them in real-time.

It’s a kind of lagging trading signal because you will only be able to see the divergence after the movement has already occurred.

The QQQ price would have already completed the move by the time you see this pattern on the chart. Timing, inevitably, is very important.

When there is a divergence between the ADX and the MACD indicators usually the QQQ price will plunge once there is an alignment between the two technical indicators.

This is the perfect signal to buy QQQ puts.

See the QQQ chart below:

qqq swing trading system

In bear markets, we need to adopt new trading tricks to keep the profit coming.

So, here are the rules to follow for buying QQQ puts:

  • ADX and MACD are both dropping in tandem with QQQ price.
  • ADX and MACD divergence which is usually accompanied by a retracement in QQQ price.
  • Wait for ADX to converge in the same direction as MACD before buying QQQ puts.

When you see the MACD moving averages and the bottom ADX indicator converging, that’s a signal that the QQQ price is about to rally.

This is the perfect signal to buy QQQ calls.

See the QQQ chart below:

day trading qqq options

The entire price action strategy can be summarized into 3 steps:

  • ADX is rising in tandem with the QQQ price dropping.
  • When ADX and MACD converge or they squeeze together, it signals a possible trend reversal.
  • Wait for the MACD’s moving average crossover to trigger a trade.

When the ADX and MACD squeeze together, it’s like a pressure cooker of buyers and sellers, and the minute they turn away from each other it signals you to get ready and jump on the bandwagon.

Note * These QQQ trading signals happen over and over again on all time frames.

Final Words – QQQ Options Trading Strategy

In summary, the QQQ options trading system has a promising and rewarding outcome. You can use our QQQ swing trading system to exploit both bear markets and bull markets. Make sure as a swing trader you trade the monthly options with at least 4 weeks to the expiration date and are 1 strike out-of-the-money OTM. Our QQQ options trading signals will typically last 1 to 3 days.

Here is a short summary of our QQQ trading strategy:

  • Look for ADX and MACD convergence for buying Call options.
  • Look for ADX and MACD divergence for buying Put options.
  • Also, make sure you use two instances of the ADX indicator to better spot this options trading signals.

Make sure you test this strategy on a demo trading account but make sure you follow the options trading rule outlined throughout this guide.

Thank you for reading!

Feel free to leave any comments below, we do read them all and will respond.

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With over 50+ years of combined trading experience, Trading Strategy Guides offers trading guides and resources to educate traders in all walks of life and motivations. We specialize in teaching traders of all skill levels how to trade stocks, options, forex, cryptocurrencies, commodities, and more. We provide content for over 100,000+ active followers and over 2,500+ members. Our mission is to address the lack of good information for market traders and to simplify trading education by giving readers a detailed plan with step-by-step rules to follow.