QQQQ. Options Trading. Options Trading. Technical Analysis. QQQQ. Index Trading. NASDAQ 100.


QQQQ (Nasdaq-100 Index Tracking Stock) is the most active ETF (Exchange Traded Fund)

NASDAQ 100 NDX Options SPX S&P 500 Options S&P 100 OEX Options DOW DJX Options QQQ Options Trading Systems

QQQQ Options Trading

Achieve superior returns with confidence! Trade QQQ options with us. Our unique, volume-based market timing strategy for the NASDAQ 100 really delivers…

Options Exchange

Trader's Forum

Options Spread

Home   |  FAQ   |  Tutorial   |  Site Guide  |  Stock Charts  |  Support  |  About Us


Options Signals Signup

Our Timing Signals
Email Alerts
Alert Example
Suggested Entry Price
Suggested Exit Price
Expired Signal
Alternative Trades
Our Timing Strategy
All About Our Signals

FREE Options Newsletters

How much is 21 + 3?
Submit Email:


Trading Volume Spikes

(part 3)

Research Results

From our analysis of eight years of historical S&P 500 volume data – and from the experimentation with more than 400 combinations of fast and slow VMAs and more than 20 PVO settings - we conclude that significant volume spikes tend to lead to trend reversals.

The PVO indicator makes it possible to establish critical volume spikes levels that have the potential to lead to trend reversals. We used the PVO to create a mechanical trading system that generates buy and sell signals.

Our research indicates that critical PVO levels are not constant but fluctuate over time. This is why they should thus be recalculated and adjusted on a regular basis. During long-term trends, an index will show a different reaction to volume surges depending on whether they appear near the onset of that trend (where a huge volume surge would be required to reverse it), in its middle (where a smaller volume spike would lead to a correction), or near its end (where it has become exhausted and is thus ripe for a reversal, even on a light volume surge). For the same reasons, critical PVO numbers may vary between supportive and resistive volume spikes.

Based on our review of historical volume data, we have found that the following settings are optimal for an analysis of the March-August 2005 timeframe:

  • A 2-day VMA as fast the VMA;

  • A 25-day VMA as the slow VMA;

  • 15% as the critical level for resistive PVO values;

  • 20% as the critical level for supportive PVO values.

The settings above generated the best returns for options trading. In Table 1 and Chart 2, we list those days where the PVO exceeded its critical levels.

While focusing on an analysis of the S&P 500, this does not imply that a trader would be restricted to trading the SPY. Since the S&P 500 index best describes broad market trends, an analysis of the S&P 500 can serve to trade any securities that generally move in concert with the broad market. In our specific example, we have applied the critical PVO data that was collected for the S&P 500 index to QQQQ options.

In order to evaluate the profitability of the system, we have simulated options trades according to the following rules. We:

  1. Traded only options expiring 2 months from the time the trade was initiated;

  2. Bought the cheapest in-the-money options;

  3. Bought calls when the supportive PVO exceeded the critical level for supportive VMA spikes;

  4. Sold calls when the resistive PVO exceeded the critical level for resistive VMA spikes, or at expiration, whichever came earlier;

  5. Bought puts when the resistive PVO exceeded the critical level for resistive VMA spikes;

  6. Sold puts when the supportive PVO exceeded the critical level for supportive VMA spikes, or at expiration, whichever came earlier.

For instance on June 24, as the S&P 500 was pushing lower, we noted a large supportive volume spike. We selected a 2-day VMA as the fast VMA and a 25-day VMA as the slow VMA. A PVO of 23% was calculated for this day, revealing that the average volume traded on June 23 and June 24 exceeded the average volume for the previous 25 trading days by 23.5%. Based on the supportive volume spike noted over these two sessions, we decided to purchase QQQIJ calls, which at the time were the cheapest at-the-money calls with an expiry date two months away. The decision to sell these calls (and take a profit of 89.74%) was subsequently made on July 17, when we noted a resistive volume spike with a (2/25) PVO reading of 15.9%.

Table 1: QQQQ options trades outlined in Table 1 and S&P 500 VMA spikes.
 S&P 500 Index (^GSPC)  Critical PVO Levels
Fast VMA - 2-day VMA; Slow VMA - 25-day VMA
Simulated QQQQ Options Trade
Date PVO 5-day
on Chart
Symbol Open
7/21/2005 15.9% 0.54 R E Buy Puts QQQVN $1.26 08/25/2005* $1.65*  30.95%
6/24/2005 23.5% -25.39 S D Buy Calls QQQIJ $1.95 07/21/2005 $3.70  89.74%
6/17/2005 17.7% 18.85 R C Buy Puts QQQTL $0.90 06/24/2005 $1.25  38.89%
4/18/2005 25.7% -35.23 S B Buy Calls QAVGH $2.008 06/17/2005 $3.90  95.00%
4/15/2005 31.4% -38.58 S A Buy Calls QQCFI $1.32 06/17/2005 $3.20 142.42%

**VMA Spikes: S - Supportive; R - Resistive
*Date and price at the moment the data was compiled for article


Chart 2: QQQQ options trades outlined in Table 1 and
S&P 500 VMA spikes.

A relatively complex analysis of historical volume spikes and price movement data lies behind the apparent simplicity of the numbers presented above. For the period between March 3, 2005 and August 2005, the best results were achieved by applying a critical (2/25) PVO level of 15% for resistive volume spikes and a critical (2/25) PVO level of 20% for supportive volume spikes. Between August 2004 to March 2005, the best results were achieved with a critical (5/25) PVO level of 13% for resistive volume spikes and a critical (5/25) PVO level of 11% for supportive volume spikes. Trading results may be further improved with a proper understanding of volume, as well as access to real-time and historical volume analysis tools.


The above shows that it is possible to successfully trade options using a mechanical trading system that generates buy/sell signals based on an analysis of the volume patterns of the S&P 500 index. Traders are however still advised to use volume charts and to recalibrate critical PVO levels on a regular basis.

The following simple trading rules may assist traders in integrating PVO analysis into their personal trading systems:

  • Get access to volume charts that allow you to use the PVO indicator, or at least two separate VMAs;

  • Review historical volume data to determine PVO critical levels;

  • Analyze current volume spikes to establish critical PVO levels on volume charts;

For Instant Access,
Sign up Now!

Just one winning trade
could pay for your membership for years to come!


The Information on the Site is provided for information purposes only. The Information is not intended to be and does not constitute financial advice or any other advice. The trading of stocks, futures, commodities, index futures or any other securities has potential rewards, and it also has potential risks involved. Trading may not be suitable for all users of this Website. Past performance is not necessarily an indication of future performance. You absolutely must make your own decisions before acting on any information obtained from this Website.

About Options | Options Investing | Trading Strategies | Index Trading | Trading Indicators | Trading | Trading Glossary

Disclaimer | Privacy | Contact Us | Site Map

New: System FAQs | Stock Charts | How to Buy on Signal? | How to Sell? | Order not filled? | How much to invest? | All Trade | All About Our Signals | Gamma | Vega | Theta | Rho
Stock/Exchanges Info:
NASDAQ Exchange | NYSE Exchange | Amex Exchange | Articles Archive |Recommended Reading

Tutorial: Options Basics | Technical Analysis | Market Timing | Stock Market | Investing Principles
Links: Top Rated | Technical Analysis | Trading Systems | Trading Soft | Technical Analysis | Quotes | options trading | News | Brokerage | Exchanges | Misc
Glossary: A-Z or A-C | D-L | M-O | P-S | T-Z

© 1997-2013 OTS - QQQ-Options-Trading.com. All Rights Reserved.

06/25/2013 - SV1