We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
As we head into the final stretch of the year, there are growing signals of a potential year-end rally in equities. The (QQQ - Free Report) ETF, which tracks the Nasdaq-100 Index, appears particularly poised for a breakout as the price action aligns with favorable market conditions and tech stocks again find bullish catalysts.
After three months of consolidation, and considerable volatility shaking weak hands the market narrative is again favoring technology stocks. In the middle of summer, analysts were talking about big tech overspending on AI capex and wondering where the profits are. Today, investors are again excited about AI, with new and better large language models being released, Apple introducing its new AI enabled iPhone and tech leaders like Larry Ellison talking about building 1,000-2,000 new data centers.
Even with the highly anticipated presidential election coming up this fall, most data points to stocks being amid a major bull market. If you're seeking a tactical options play to capitalize on this potential "melt-up," the Nasdaq ETF QQQ presents a compelling opportunity.
Tech Stocks Breaking Out
The QQQ ETF has been carving out a bullish technical pattern over the past few months, building momentum in recent weeks and now approaching new highs. A key breakout level has been cleared, and if momentum continues, this could signal further upside into year-end.
The Nasdaq-100 Index, represented by QQQ, has benefited from strong earnings from its largest components like Apple, Microsoft, and Nvidia, pushing the broader tech sector higher. This technical setup is ideal for a bullish options trade as traders position themselves for continued upward movement.
Image Source: TradingView
Low Implied Volatility
One of the most significant factors supporting this trade idea is the current implied volatility (IV) percentile for QQQ. With IV% sitting relatively low at 35%, it indicates that options are cheaper compared to historical volatility levels. Low IV provides an attractive opportunity for buyers, as you're not overpaying for the option premium. In other words, the potential upside in QQQ can be captured without the drag of inflated option prices, giving the trade an asymmetric risk-reward profile.
It is also worth noting that some traders use options to structure trades as “income-like” opportunities, but that is not what we are doing here. Because this is a breakout trade, utilizing out of the money options, we are instead looking for asymmetric opportunities. Risking a small amount to potentially double or triple the initial outlay.
Strike Selection: Targeting New Highs for Stocks
Given the bullish outlook, we can structure this options trade by targeting 30-delta calls on QQQ. The 30-delta option strikes a perfect balance between risk and reward, offering substantial upside potential while keeping the cost of the option manageable. Specifically, the November 15, $505 strike calls are a great candidate for this strategy. This strike provides a solid blend of affordability and proximity to the money, allowing for significant gains if the QQQ makes a strong move higher.
By selecting a 30-delta option, you're also benefiting from increased gamma as the stock moves closer to the strike price, amplifying returns if QQQ makes a sharp move. Should the index rally to new highs, this trade could deliver a strong return while managing downside risk — the maximum loss is limited to the premium paid.
QQQ November 15 Long Call
Buy $505 Call @ $5.78
Upfront trade cost: $578 per contract
Maximum risk: $578.00
Maximum return: infinite (on upside)
P.S. remember that each contract is quoted at the per-share rate but represents 100 shares of the underlying security.
Image Source: Barchart
In the table below we can see numerous projected possibilities for this trade. Although the strike date gives us until mid-November until expiration, I think we may see a rapid rise in stocks over the next month. My base case for this trade is that QQQ makes new highs by late October.
If the index can reach new highs by October 23, the calls should appreciate by over 100%. Of course, the stock may move differently, getting to the target sooner, later or not at all, with returns ranging from +251% returns, to -100%. But most importantly, we know the maximum amount of risk built into the trade, allowing us to properly fit it into a portfolio.
Image Source: Options Profit Calculator
Can Stocks Rally to New Highs?
With the QQQ showing technical strength and implied volatility relatively low, this is a prime opportunity to set up a bullish options trade for the year-end melt-up. The 30-delta calls with a November 15 expiry and $505 strike provide a well-balanced approach to capturing potential upside without taking on excessive risk. Keep an eye on the breakout levels and consider adding this trade to your portfolio as we enter the final months of the year.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Options Trade for a Year End Melt up in Stocks
As we head into the final stretch of the year, there are growing signals of a potential year-end rally in equities. The (QQQ - Free Report) ETF, which tracks the Nasdaq-100 Index, appears particularly poised for a breakout as the price action aligns with favorable market conditions and tech stocks again find bullish catalysts.
After three months of consolidation, and considerable volatility shaking weak hands the market narrative is again favoring technology stocks. In the middle of summer, analysts were talking about big tech overspending on AI capex and wondering where the profits are. Today, investors are again excited about AI, with new and better large language models being released, Apple introducing its new AI enabled iPhone and tech leaders like Larry Ellison talking about building 1,000-2,000 new data centers.
Even with the highly anticipated presidential election coming up this fall, most data points to stocks being amid a major bull market. If you're seeking a tactical options play to capitalize on this potential "melt-up," the Nasdaq ETF QQQ presents a compelling opportunity.
Tech Stocks Breaking Out
The QQQ ETF has been carving out a bullish technical pattern over the past few months, building momentum in recent weeks and now approaching new highs. A key breakout level has been cleared, and if momentum continues, this could signal further upside into year-end.
The Nasdaq-100 Index, represented by QQQ, has benefited from strong earnings from its largest components like Apple, Microsoft, and Nvidia, pushing the broader tech sector higher. This technical setup is ideal for a bullish options trade as traders position themselves for continued upward movement.
Image Source: TradingView
Low Implied Volatility
One of the most significant factors supporting this trade idea is the current implied volatility (IV) percentile for QQQ. With IV% sitting relatively low at 35%, it indicates that options are cheaper compared to historical volatility levels. Low IV provides an attractive opportunity for buyers, as you're not overpaying for the option premium. In other words, the potential upside in QQQ can be captured without the drag of inflated option prices, giving the trade an asymmetric risk-reward profile.
It is also worth noting that some traders use options to structure trades as “income-like” opportunities, but that is not what we are doing here. Because this is a breakout trade, utilizing out of the money options, we are instead looking for asymmetric opportunities. Risking a small amount to potentially double or triple the initial outlay.
Strike Selection: Targeting New Highs for Stocks
Given the bullish outlook, we can structure this options trade by targeting 30-delta calls on QQQ. The 30-delta option strikes a perfect balance between risk and reward, offering substantial upside potential while keeping the cost of the option manageable. Specifically, the November 15, $505 strike calls are a great candidate for this strategy. This strike provides a solid blend of affordability and proximity to the money, allowing for significant gains if the QQQ makes a strong move higher.
By selecting a 30-delta option, you're also benefiting from increased gamma as the stock moves closer to the strike price, amplifying returns if QQQ makes a sharp move. Should the index rally to new highs, this trade could deliver a strong return while managing downside risk — the maximum loss is limited to the premium paid.
QQQ November 15 Long Call
Buy $505 Call @ $5.78
Upfront trade cost: $578 per contract
Maximum risk: $578.00
Maximum return: infinite (on upside)
P.S. remember that each contract is quoted at the per-share rate but represents 100 shares of the underlying security.
Image Source: Barchart
In the table below we can see numerous projected possibilities for this trade. Although the strike date gives us until mid-November until expiration, I think we may see a rapid rise in stocks over the next month. My base case for this trade is that QQQ makes new highs by late October.
If the index can reach new highs by October 23, the calls should appreciate by over 100%. Of course, the stock may move differently, getting to the target sooner, later or not at all, with returns ranging from +251% returns, to -100%. But most importantly, we know the maximum amount of risk built into the trade, allowing us to properly fit it into a portfolio.
Image Source: Options Profit Calculator
Can Stocks Rally to New Highs?
With the QQQ showing technical strength and implied volatility relatively low, this is a prime opportunity to set up a bullish options trade for the year-end melt-up. The 30-delta calls with a November 15 expiry and $505 strike provide a well-balanced approach to capturing potential upside without taking on excessive risk. Keep an eye on the breakout levels and consider adding this trade to your portfolio as we enter the final months of the year.