Nasdaq 100 (QQQQ) Gap Fade Options Strategy

Bring your stock options trading to new heights. The Gap Fade stock options strategy is one of the most effective and easiest options trading strategies to learn. It also has the potential to be very profitable over the long-term. In fact, James Altucher, a successful money manager and author of “Trade like a Hedge Fund” dedicated the first chapter in his book to trading gaps. He states that gap trades are the “bread and butter trade” for many hedge funds.

Here at Crowder Investment Research, LLC, we have an unconventional method of trading gaps in the ETF QQQQ which represents the NASDAQ 100. Backtesting this particular method shows a win ratio which has exceeded 78% over the last ten years. Furthermore, the options strategy had a win ratio of 79% during the bear market of March 2000-September 2002. Take that win ratio and add a disciplined approach to trading the strategy and it’s easy to see how successful this unique strategy can be.

Basically, the Gap Fade options trading strategy consists of short-term options trades utilizing calls or puts that last a maximum of two days. The strategy typically trades one to five times a month, thereby limiting exposure to the market.

Statistical Data

The underlying QQQQ has a success rate of over 78% for the last ten years. With a total of 817 gap fade opportunities with 649 successful gap fills it is imperative to stay disciplined with this strategy. The following chart shows the year to year success rates of QQQQ gaps that are filled within the same day. The percentage is even higher if trade is held for a longer period. However, the risk exposure is also higher, so in most cases it is recommended that you follow the guidelines. Inherently options have finite lives, so holding on to an option for a lengthy period of time, in hopes of the initial gap filling, has the capability of being catastrophic to your investment capital.

Check out the performance!

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