Yo Pit Crazies,
We’ve been discussing the NASDAQ rebalance all week to get folks ready for the Invesco QQQ Trust (Ticker: QQQ) rift about to happen. The issue in the short term has been the “pre-squeeze” shorts that piled into the QQQ trade early last week. Our solution was a short QQQ component and a long a name like the Dow Jones Industrial Average ETF (Ticker: DJI) somewhere else.
The DJI happens to have Microsoft Corp (Ticker: MSFT) in it. So far that’s working, as we rolled a win in Nitro Trader leaving us with a Nvidia Corp (Ticker: NVDA) put fly for almost nothing for the next few weeks.
MSFT did surprise everyone by exercising some pricing power and raising the prices on their AI kit. Easy to tell when that announcement was made:
MSFT 5 Day Chart with 1 min candles
Traders went in bid, and I suspect it made things worse for the shorts – that crazy gap held up most of the day. The gap added a $150 billion to MSFT market cap in about a nanosecond.
I did add a trade on Thursday in the Pro Chat for MSFT that used a trade technique called the SSS, or Strangle Straddle Swap.
But a better strategy for this rebalance would be using pair trades.
Pair Trading Strategy
A pair trade is long one security and short another. In Nitro Trader, Mark and I bought some DJI calls and bought some NVDA put butterflies. The DJI calls will move faster if DJI rallies, which it did. The NVDA put flies will move slower on a big rally in NVDA, which it did.
Basically we got paid to be short NVDA while it rallied.
The rift should unfold the following few days. We will be ready when it does.
To Your Trading Success,
AG