a rebalancing gaME aT plAy 🤑

Thanks to Tiger for awarding the weekly top predictions for QQQ again. Are we ready to ride the volatility of the big tech earnings, Nasdaq rebalancing and the possibility of a final rate hike by FOMC next week?

Launched in 1985, the Nasdaq 100 index tracks the performance of the largest, and most actively-traded, non-financial companies listed on the Nasdaq stock exchange.

The index is capitalization-weighted, meaning that stock weights in the index are based on each company’s market cap (with some rules to rebalance if companies have an oversized influence).

One of the most well-known trackers of the index is none other than Invesco QQQ’s ETF.

Microsoft and Apple, together with the next five ranked companies, made up over 50% of the total weight of the index in April. These companies are: Alphabet (Google), Amazon, NVIDIA, Meta, and Tesla, with Alphabet’s class A and class C shares occupying two spots.

Here’s a breakdown of the top 7 companies (aka The Magnificent Se7en) on the Nasdaq 100, by percentage weight in the index on April 19, 2023.

Magnificent 7

The dominance of these seven companies within the NASDAQ 100 is a reflection of how central they are to large parts of the wider consumer economy. The economic output and influence of the tech giants speaks for themselves, and Tesla still leads the (rapidly crowding) electric vehicle market.

Perhaps the underdog of the bunch is NVIDIA, which produces graphics processing units (GPUs) that power the visuals in many electronic devices and, more recently, artificial intelligence (AI) systems. The latter in particular has made investors incredibly bullish on the company, as NVIDIA’s stock has risen and the company has recently joined the coveted $1 trillion club.

The Pros

The success of the biggest contingents can pull up the entire index, and the Nasdaq 100 has consistently outperformed broader markets. In fact, $10,000 invested in the Nasdaq 100 in 2013 would be worth $50,000 today, while the same investment in the S&P 500 would now be $30,000.

The Cons

However, if even one of these large companies underperforms, it can have a major impact on the entire index. This outsized influence can also hide general market woes that may be affecting many other components of the index, and the economy.

Using The Wheel Option On META 

It is believed that META could remain at the similar weightage from next Monday. With shares hitting a recent high of 318 last week from the low at 124 on Jan, META has spiked a whopping 150% over 7.5 months! Good thing that I held and hope for this best outcome 😅

With the recent introduction of Threads by META to challenge Twitter and the recent tech pullback, investors are weighing in on how to play the Mag 7 stocks heading into earnings next week.

Sell covered calls + sell cash secured puts

⚠️ Trading Tips: Employing the wheel options strategy as posted about 1-2 weeks ago. Managed to sell covered calls and netted 100% profit on Friday, 21 July.

Took a new position at 315C at $800 per con and sell put at 295P at $600 per con, both expiring next Friday, 28 July with a total premium collection of about $5000.

Will also consider taking calls below 291.2 and calls above 297.5 early next week. Trade safe in the busy earnings season ahead! 💪

Weekly option trades summary 

With the advent of large language models of AI in 2022, the tech sector is on a precipice. Will AI lead to further profitability—and bigger market caps—or will it render entire companies defunct, leading to a big shakeup in the composition of the Nasdaq 100 index? Let’s find out soon!

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