Playing the Dead Cat Bounce with Two QQQ Trades

|March 22, 2022

We just saw the market have its best week in two years.

The Nasdaq Composite closed 10.4% higher on Friday than its Monday open as dealers, anticipating the quadruple witching day, unwound their hedges, covered their shorts, bought up futures, and brought the whole market up as other investors piled on.

Now, as I’m writing this on Monday afternoon, the markets are already selling down. The Nasdaq Composite and representative ETF QQQ have slipped and may go even lower.

The rally is over, but this dead cat bounce will not put an end to our profits.

As the market swings lower, as I suspect it will, you will reap the benefits (and maybe double you money, too) as long as you grab the two QQQ trades I discuss in today’s video.

Click the video below to watch or scroll down to read the full transcript.

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Thanks for watching.

03/22/2022 Take it to the Bank Tuesday Transcript:

Hi everybody! Shah Gilani coming to you with another Take It to the Bank Tuesday, where I recommend what you should do with $100 today (as in, right now).

I’m recording this on Monday, early in the afternoon. I’m looking at the market after it bounced spectacularly last week and I see that the Nasdaq Composite and representative ETF QQQ are down about 1.47%.

So much for the rally…

Is it all going to come undone? I think it has a chance to.

Why? Let’s start with what happened last week. We had a couple of things… A confluence of a couple of events. First, there was some potentially positive news on the war in Ukraine that didn’t really happen.

Then, it was the expectation that the Fed meeting was going to be really negative, but they were not as negative as people expected if you like the fact that the Fed telegraphed that there were six more hikes coming. I don’t know how that was good news, but apparently investors thought it was. I didn’t!

The market kept rallying and on Friday – yeah – we had a lovely flourish, too. Why? Who knows.

Oh, I do. Because it was quadruple witching day.

Here’s some context: dealers sell puts (on the indexes or single stocks) to investors who are expecting the market to go down, making the dealers short on the puts they sold. In doing this, the dealers put themselves at risk of losing money if the markets (or single stock) go down, so what do they do? They hedge their own risk by selling futures.

So, going into an expiration Friday, especially a quadruple witching expiration Friday, a lot of dealers were short an awful lot of futures to hedge all of the puts that they had sold across the markets. What does that do? If the market started to move up at all the dealers then unwind their hedges by buying back the futures that they sold.

We saw a massive amount of that happening last week going into quadruple witching Friday.

So – yes – we got a little bit of a rally, which fed on itself because dealers had to take off the hedges that they had, meaning they were buying back the futures they shorted. The market was pushing itself up and they were pushing the market higher by buying back futures, covering their shorts.

The market is going higher and higher and higher, and everyone just piled in, got rid of their puts to buy calls, buy underlying stocks, buy indices, buy ETFs like QQQ. We had this great rally where the market had its best week since November 2020.

Wow. That’s a lot of mechanical stuff that, too me, looked like a dead cat bounce in the works.

So, how do you play that if it is a dead cat bounce? I say it is and it was. We starting to see already on Monday afternoon, the markets are selling down. It doesn’t mean we’re going to end down today. It doesn’t mean we’re not going to try and rally again. However, I think what happened last week and the hope for the market being able to bounce from here and go higher are ill-conceived, at best.

So, that means the market can come right back down. If you think that now, I’ve got the perfect play for you to take to the bank.

I like playing the Qs on the way up and on the way down. Not just because they had a nice pop – they’re down again as of Monday afternoon. I think they can come down further.

The way I like playing the Qs coming down is an inverse ETF called Proshares Short QQQ (NYSE:PSQ).

Being an inverse WTF, PSQ goes up when the QQQ index (or the Nasdaq Composite, if you will) goes down. Then the QQQs are going to go down and the PSQ is going up – since it’s an inverse ETF. So, if I think the market is overbought and it can come back down – if I think we’re experiencing a dead cat bounce rally and its going to fade – I want to buy PSQ.

But here’s one better. You can buy calls of PSQ, too.

Why would you buy calls on PSQ? Because you can get some leverage. So, today, we’re taking it to the bank.

What I recommend you do with your $100 is buy the PSQ April 14 2022 $13 Call (PSQ220414P00013000). If the PSQ goes up, that means the QQQs and the market – the Nasdaq Composite – is going down. That will push your calls upward.

So, if you buy PSQ April 14 2022 $13 Call (PSQ220414P00013000) between 10 and 15 cents, I think we could see a quick 100-150% gain on those really cheap calls. If the market comes down, I expect PSQ to maybe get above $13 – maybe even get to $14.

That’s your Take It to the Bank Tuesday. Go out and buy yourself $100 worth of PSQ April 14 2022 $13 Calls (PSQ220414P00013000). If you get them for 10 cents, you can buy 10 call options for hundred bucks. If you pay 15 cents, you get a few fewer. It won’t matter. You’re going for the percentage gain. For your $100, if you get a 100% gain, you just doubled your money.

Take it to the bank – cheers, all.



Shah Gilani
Shah Gilani

Shah Gilani is the Chief Investment Strategist of Manward Press. Shah is a sought-after market commentator… a former hedge fund manager… and a veteran of the Chicago Board of Options Exchange. He ran the futures and options division at the largest retail bank in Britain… and called the implosion of U.S. financial markets (AND the mega bull run that followed). Now at the helm of Manward, Shah is focused tightly on one goal: To do his part to make subscribers wealthier, happier and more free.