Originally published on TheTechTrader.com.
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Below is a Daily chart of NQ. Overlayed are a number of lines, particularly a "pink diamond" formation that occurred during the first one-third of 2011, Fibonacci fanlines, several trendlines, and price levels.
Eventually the diamond broke to the downside and dropped to almost an identical level in height to that of the diamond (broken pink lines), nearly touched the 127.2% Fibonacci fanline (yellow), and pierced an extension of one of the diamond trendlines.
Price is approaching a similar measured move which, if it reaches it, would take it to 2616.50, where it would first be met by the 78.6% Fibonacci fanline (broken purple), and then up several points to 2620.25 which is the same height as that of the diamond. Should price pull back from that level, near-term support is back down at the top of the diamond at 2403. 50% of that move would take it down to 2500ish.
Okay, I think we all know my bias at this point. For those who don’t, it’s bearish.
I am not going to bother going into why I am bearish. Just read my posts from the last few weeks to truly understand why I am currently bearish.
So, I want to talk about something more important today – strategy. More specifically options strategies.
With options, you can control with precision, the amount of risk and type of risk you wish to take in any given trade in any situation.
One of my favorite strategies is selling vertical call/put spreads like in the Theta Driver Options Strategy.
Let me explain. And please understand I am keeping it simple for conceptual reasons. Once, you understand the basics we can really dig deep to understand how to apply risk-management.
(1) The stock's lifetime low was on July 13,1982 at $1.43 per share;
(2) It is up about 34,500% since then;
(3) More recently, it is up 7,300% since April 17, 2003, not even nine years ago;
(4) $14 million invested in AAPL in 2003 would be worth a cool billion now. So what did you do with your $14 million instead, huh?
Hurts, don't it?