Hedging During this Season with the Nasdaq

With earnings reports coming in over the last week and next few weeks, there’s a lot of speculation about what might happen to the market, who might report what, and how traders and investors alike can be prepared.

No one wants to be on the wrong side of an earnings report.

Especially when the trend going into this season has given us a clear picture of several high momentum stocks losing their momentum. Frankly, they’ve been rather soft.

So here’s a few things to know about earnings, how to play it, and what might happen…

Click the video above to watch my entire segment talking about hedging in the options market on Nasdaq Trade Talks.

To start, one of the best ways I’ve found to play a market like this one, is to take advantage of hedging with the options market.

Now there are several ways you could do this…

Nasdaq 100 Behavior

The Nasdaq 100 is a proprietary index the Nasdaq has, and I love to use it to look at the history of a certain stock going into earnings. After all, I love to trade the run into earnings, and understanding the history of a stock is crucial if you want to successfully trade ‘pre-earnings.’

So for this season, I used the Nasdaq 100 to look at the behavior of the market after big-name tech companies reported.

Why?

Well many times the market rallies with excitement after these particular companies report, but then historically, within the next 2-3 weeks… it settles back down (or even drops aggressively). So based on my analysis, I anticipate that within the next few weeks, we’ll see the index pull back at least a little bit.

So keep that in mind for potential trade opportunities.

Looking at this data, along with the other chart of the Nasdaq 100 Targets that I included in the video above, helps us predict what price action might look like going forward.

Then how could a long-term portfolio investor hedge themselves with that in mind?

QQQ Order Entries

The first question to address there is what size account you’re trading with.

But here’s what I do (generally with smaller accounts)…

I look at trading QQQ. Why? Because it’s a cheaper product, and I like trading multi-legged options that have a lot of different strikes to work with. This works perfectly with a butterfly, which is a favorite of mine right now.

If you want to know more about how I hedge with a butterfly on the QQQ I address that in the video too.

Plus, I’ll be diving more in-depth on hedging with Nasdaq products during my upcoming webinar “Defensive Trades for News Drive Action” on Monday, November 4th at 7pm Central. If you want to join, grab a spot here, it’s totally free.

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