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By David Becker

The equity markets are breaking out and there is still time to catch the upward momentum of a break out. Options strategies are excellent investment vehicles to lever your view into making robust returns. The Russell 2000 index is leading the charge higher, and the big cap equity indexes are likely to follow after the law makers approve a stimulus package that will increase GDP projections for 2011.

The Nasdaq 100 ETF (QQQQ) is breaking out on a weekly trend line, with a powerful head and shoulders pattern behind the market which will add momentum to the upside. A break out to the upside on a close above 54.85 which is equivalent to 2,236 on the Nasdaq 100.

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The Trade in QQQQ

The trade for this breakout is a collar. If the market failed on this breakout, it would likely test the 50, level which was former resistance, potentially creating support. Selling a $50 put, (March expiry) will allow an investors to buy at a good level on a pullback, as well as, benefit as the market continues the break out process. To complete the structure, purchase a$ 58 call (March expiry) which will allow an investor to collect 17 cents on this trade.

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Volatility on the QQQQ

Volatility on the QQQQ has broken through support, and although the RSI on the implied volatility mean index is on the lower end of the range, implied volatility should continue to move lower for the next couple of months. Support on the implied index mean is close to 15, which and investors should keep their eye on. If this chart starts to reverse, the options markets will be telling investors, the a rocky ride is ahead.

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Disclosure: No position

Source: Options Trade: Breakout in the Nasdaq 100 QQQQ