Podcast – Episode 209 — NASDAQ 100 Index Effect

Trading the NASDAQ 100 Effect: Does It Still Work?

There is a long-held belief in the trading community regarding the “NASDAQ 100 Index Effect.” The premise is incredibly straightforward, and on the surface, it makes perfect logical sense.

When a stock is chosen to be included in a major benchmark like the NASDAQ 100, it becomes a mandatory purchase for massive institutional players. Every time a retail investor puts money into their 401(k) or buys shares of a tracking ETF like the QQQ, a fraction of that money is forced into the newly added stock. Because this creates a guaranteed floor of demand, conventional wisdom says you should buy the stock the second the announcement is made, ride the wave of forced institutional buying, and count your profits.

But as conservative traders who prioritize risk management and capital preservation, we don’t rely on conventional wisdom. We rely on data.

We looked at 78 stocks added to the index between 2010 and 2025 to see if this strategy still holds water. The results will likely change the way you view index rebalancing forever.

The Rules of the Game: How a Stock Gets In

Before looking at the performance data, it helps to understand how the exchange chooses its constituents. To be considered for the top 100, a company must:

Be listed exclusively on the NASDAQ exchange.
Operate outside of the financial sector (no banks, brokerages, or insurance companies).
Maintain a minimum average daily trading volume of at least 5 million shares.
Avoid bankruptcy proceedings.

Additions and deletions typically happen during the grand annual rebalancing in December. However, they also conduct quarterly reviews to boot underperforming companies, and they make emergency substitutions for mergers or bankruptcies.

Recently, the criteria have even been bent for massive private companies. With the “SpaceX Rule,” a company whose market capitalization places it firmly in the top 40 can be fast-tracked into the index just 15 days after its IPO.

The Data: 15 Years and 78 Stocks Later

If you want a spot in the top 100, your market cap has to grow, which means your stock price has to go up.

Our research showed that, on average, a stock gained 34% in the six months prior to the announcement that it would be joining the index. They build massive momentum to earn their seat at the big boys’ table.

Naturally, you’d expect that momentum to accelerate once the inclusion is announced and the ETFs prepare to buy. But what actually happens?

From the day of the announcement to the day of actual inclusion (usually about a week later), the average stock lost 0.4%. It essentially goes completely flat. One week after the official inclusion, the average stock was up a negligible 0.6%.

Why does this happen? Wall Street has gotten too efficient.

“With $800 billion in just the one QQQ ETF… the arbitrage is so crowded that everything is just flat, so the buy the announcement… doesn’t work anymore.”

Hedge funds and institutional traders know the criteria. They know exactly which stocks are sitting at ranks 101, 102, and 103, and they know which current constituents are bleeding out. They buy the candidates months in advance. By the time the press release hits your news feed, the big money is already looking for the exit. If you buy the announcement, you are providing them with their exit liquidity.

A Data-Backed Approach to the Index Effect

If buying the announcement is a dead strategy, how do we responsibly try to capture this index inclusion momentum? We have to act like the institutions and find the candidates three to six months before the December rebalancing.

Fortunately, the exchange does a lot of the heavy lifting for us.

1. Monitor the Q50 (Ticker: NXTQ)

The NASDAQ Q50 is an index that tracks the 50 largest companies that are not currently in the top 100 (essentially ranks 101 through 150). These are your prime candidates. If a stock in the Q50 starts gaining serious momentum and jumping in the rankings, it is positioning itself for an inclusion nod.

2. Demand Profitability

When we separated the massive winners from the losers in our 15-year study, one fundamental metric stood out above all others: GAAP earnings.

Companies that were actually profitable when they were included routinely beat the index over the following year. Unprofitable companies, especially those built purely on hype (often called “story stocks”), routinely disappointed.

3. Track the Smart Money

Use a free financial screener (like Finviz) to check the institutional ownership of your candidates. Furthermore, look at 13F filings to see if hedge funds and mutual funds are quietly accumulating shares. If a profitable company in the Q50 is suddenly seeing a spike in institutional buying around July or August, it might be a prime candidate for the December rebalance.

What to Avoid at All Costs

In trading, knowing what not to do is often more important than knowing what to do. Based on the historical data, here are the core hazards to avoid:

Do not buy the announcement. The run has already happened. The arbitrage is crowded. Let it go.
Beware of rising interest rates. The worst-performing cohort in our study was added in December 2021, right before the Fed began aggressively hiking rates. Growth-heavy “story stocks” (like Airbnb and Lucid) were decimated because they lacked the fundamental strength to survive a tightening macro environment.
Avoid chasing unsustainable momentum. If a stock is up more than 100% in six months but lacks real revenue growth and GAAP profitability, stay away. The momentum will break, and the fall will be steep.

Trading the index effect is no longer a matter of reading a headline and clicking buy. It requires a bit of legwork, a focus on fundamentals, and the discipline to enter early and let the market come to you.

Podcast Transcript

Allen: How the Nasdaq 100 actually works. Actually, I think that is a great idea, and that is what we’re going to be talking about today. How the Nasdaq 100 works, and can you make money? Because everybody talks about, like, “Oh, hey, we can just wait for the Nasdaq to buy, right?” If a stock gets included into the Nasdaq, it’s obviously going to go up. So as soon as it’s announced, we should buy the stock, and then when it gets added to the index, all the different indexes and the ETFs and whatever are going to have to buy it, and then it’s going to go up even more. Now, that is common thinking, and it’s maybe common sense, right? Is it actually true, or is it not true? We have lots of research that might change your mind. So on this show, we are going to be talking about the Nasdaq 100 effect and how everything is working today in the markets. So, Matt, how are you doing today?

Matt: I’m good.

Allen: Awesome.

Matt: Yeah, I’m excited about this one.

Allen: Let’s head on over to today’s topic. So, it’s called the Nasdaq 100 effect, right? A stock gets anointed by the Nasdaq as one of the top 100 stocks to get the honor of being in its index, and that means that it gets tracked and gets followed. Then all the ETFs, like the QQQ, have to buy this stock in the index, and it becomes the benchmark. The NASDAQ 100 is the technology benchmark, so it only makes sense that when a stock is chosen, if more people are going to buy it, the stock will go up. And then every time you know, Joe Schmo or Judy Homemaker, whoever’s out there, they put their money in their 401(k) or their IRA, or their mutual fund, and they say, “Hey, get me the Nasdaq 100,” a piece of that money goes into this new stock that just got in, and so it continues to rise. That’s what they say about Apple, you know, like Apple’s one of the biggest ones, and so Apple gets people to buy it every single month because people are putting money away in their retirement accounts and their pension funds and all that, and so Apple just continues to go higher.

Matt: Yeah, it’s an interesting concept.

Allen: So let’s take a look and dive deep into what does that mean. How does a stock get into the Nasdaq 100? What are they looking for? And let’s look at the research on if it actually does work as a money-making strategy. Now, again, this is trading, this is investing, not individual investment advice. You can lose money trading, you can lose money investing, and so talk to your financial advisor, or whoever is in charge of your money—maybe your spouse—talk to them before you do anything, make your good decisions, and do your own research.

But we looked at the last 78 stocks from 2010 to 2025. So, the most recent 15 years, we looked at 78 stocks that were added to the index to see how they did. Now, in order to get into the index, right, there’s three ways, or three different timings. First is in December. This is where they do like a whole clean sweep type of thing. They look at every single stock, they do the evaluation: is it going to stay, is it going to go? And if it’s going to go, then they kick it out and they find a replacement. The second week of December is when the results are announced, and then the third Monday of December is when everything changes over. They usually do three to seven companies at that time.

Matt: I might add, this is the one you usually hear on the news. There’s usually a sound bite or something. “Oh, there’s a rebalancing.”

Allen: Yeah, “This stock went in. This stock came out.” And normally they talk about the stock that’s going in. They don’t talk about the one that’s coming out. They never do. They talk about the one that’s going in because then everybody’s like, “Oh, yeah, I’m gonna go buy that because it’s going in,” right? And I have done that myself, you know? I was like, “Oh, yeah, this stock is joining the S&P, for example. I have bought that stock.”

Right now, I bought calls on a stock last week on Friday because they were going to do the quarterly rebalancing, which just happened, and it went into effect on Monday, two days ago. So the quarterly rebalancing happens every three months, and if anything has fallen below the 100, if there’s a stock in the index and they lose value, then they kick them out of the 100. So in June of 2024, they added Astera Labs, CoreWeave, Nebius—which is the one I bought—Rocket Labs, which is the one my dad told me I should buy.

Matt: I forget, they make rockets?

Allen: They’re kind of like a SpaceX mini competition, or they put up satellites in space and stuff. Teradyne. And they took out some like Zscaler and Verisk Analytics. So those were the ones that were just added. Nebius, you know, I thought, “Oh, it’s gonna go up.” That’s the one I bought calls on.

And then the third way, which is the newest way, which is the SpaceX Elon Musk asterisk rule…

Matt: The fast way.

Allen: The fast way is that if a company’s market share is large enough to be in the top 40, then it can join right away, even for an IPO. So CoreWeave is now one of those, and SpaceX will also be added very soon. CoreWeave was actually added in June already, they had to wait, but SpaceX will be added, thinking 15 days after IPO. So it’s coming very quickly for that one.

Matt: Good to watch OpenAI and Anthropic going forward.

Allen: Yeah, they might as well be added for that. So we’ll see what happens there. But now it’s a rule, you know, if it comes out and it’s in the top 40, and now SpaceX is obviously like the fifth largest company in the world right now, or maybe down because it lost value, but you know, maybe it’s the 20th largest company in the world somewhere in there. So it’s definitely part of the Nasdaq.

And then quarterly or emergencies. If one of the Nasdaq 100 gets acquired, they have a merger, if they go out of business, they do bankruptcy, they transfer their listing… because they have to have a listing on the Nasdaq. But if, let’s say, they move over to the New York Stock Exchange or some other stock exchange, then they get removed immediately, and then somebody else is added without much of a hubbub about it.

So, in order to be considered as a stock, you have to be on the Nasdaq exchange exclusively. You cannot be on any other exchange. You cannot be a financial company, so no banks, no insurance, no brokerages. You have to have at least 5 million in average trading volume, $5 million worth of stock traded. And they used to say that you have to have three full years of being listed until recently, not being in bankruptcy or having an acquisition. So those are basically the rules.

They don’t have a rule anymore about profitability. S&P 500, they do. You have to be a profitable company to get in, and you have to be at least six months. Nasdaq is changing that now. We’re specifically today talking about Nasdaq, and all of our research has been done on Nasdaq stocks and how they react to being added to Nasdaq. We’ll probably do a follow-up on the S&P 500 and see, “Okay, hey, how does that work? You know, is there anything different, and maybe there is some kind of edge created there?” I don’t know, that’s what we’re always looking for.

Matt: I think it’s coming right? You can see the general theme—everything’s going quicker, and rules are being changed, and yeah, it probably happened there too.

Allen: Maybe, I mean, so far they stuck to their guns, but if there’s a lot of competition, then yeah, it might change. So, let’s see what happens now. I think over here it’s interesting because SpaceX could have listed on Nasdaq, or they could have listed on the New York Stock Exchange, or they could have listed anywhere. And so I think for them it was more negotiating, like, “Hey, we want to be in the index. So Nasdaq, you own the index and you own the exchange. So if we’re going with you on the exchange, we want to be in the index.” And they were like, “Okay. Well, do we stick to our values and our rules, or do we have a one-time exception? Do we make billions of dollars? I think we’ll go with the billions of dollars.”

Matt: Yes, I think that’s how it went down.

Allen: Possibly. Who knows? We’re just making up conspiracy theories. All right, but still, that’s probably maybe what happened.

So now, you have this stock, right, and how do they choose it? Like, what rationale do they have? They don’t really tell you everything, but the idea is that we looked at 78 stocks that were added to the Nasdaq 100 over the last 15 years. Now, before they were added… the biggest thing is they want the top 100, right? They want the top 100 stocks that are trading on the Nasdaq exchange to be in this index. So in order for a stock to become one of the top 100, what does it have to do? It has to go up in price, right? The stock has to go up. And so the average stock that was added to the index gained 34% in the six months before they announced that it was going to join.

So you have a situation where there’s a stock that’s really ramping, you know, 34% in six months. That’s a lot for most companies, for every company, it’s a lot, that’s huge. And then they get the nod, and they’re like, “Okay, you’re big enough, you can come sit at the big boy table now.” And they put out the announcement. Usually, they announce it, and then about a week later, it gets added, and everything switches. People have to sell the ones that come out, and they have to buy the one that got in.

So we’re thinking, okay, so it’s already ramped up into the announcement. Then you have an announcement, it probably should go up, because there are people buying it before all the indexes or all the ETFs. And then when you have the inclusion, then it should go up even more, because now you have all these big institutional buyers, the ETFs, and whatnot, that have to buy, and it should go up even more, and just continue to go higher. That is the thinking. The reality is that from the announcement to the day that it’s included, the average stock lost 0.4%.

Matt: Which was really actually a little bit hard to read. It’s like, how is that possible? Right?

Allen: Right. So you have the average stock shooting up 34% in six months, and then they say, “Hey, you’re going to be in the Nasdaq,” and then it goes sideways. Pretty much sideways until it gets into the Nasdaq. So, like, what happened? It’s like, you cut my momentum off, like I can’t go up anymore.

Matt: Minor league baseball player getting to the pros, right? That’s average.

Allen: Yeah, so it’s really weird. Now, why does this happen? Well, it’s people that know the criteria that Nasdaq is using. Like, they have a pretty simple criteria: “We want the top 100.” Okay. Well, if you have a stock that’s like number 101, right, and it’s right there, if you buy it, it might get into the 100, right? So they know which stocks are there, they know which stocks are in line, and they see other stocks that are dropping.

Matt: Yeah, so they have you. Like, how many are going to be replaced this quarter? Oh, four. Okay, who are the four that are to buy? Buy those a month, two months, three months before they get added.

Allen: And so you could make your own hedge fund, I guess, or your own whole thing about this. Figure out the stocks that could be added, buy them all, and then some of them are going to be home runs.

Matt: And it’s hard to believe that it’s right there in public view. Here it is.

Allen: But everybody doesn’t know that happens. Oh, they think, “Oh, it’s going to keep going up.” But it doesn’t. The math says, and the research says, they don’t go up after the announcement.

So, now what happens after that? Well, 20 years ago, getting added to the index was guaranteed to pop your stock. But today, with $800 billion in just the one QQQ ETF—I’m not talking about all the others that track that, as they’re going, there’s 800 billion in just the QQQs—the arbitrage is so crowded that everything is just flat. So the “buy the announcement,” like, buy the stock when they make the announcement, it doesn’t work anymore. We’ve seen that with the math. They basically go flat.

Okay, the one I bought, Nebius. I bought it for inclusion on Monday. It was up a little bit on Monday, and then Tuesday and Wednesday it’s now lost everything, and now I’m sitting at a loss, and I’m thinking maybe I should just get out of it after reading this report.

Matt: It’s so hard to read this report because I’ve done these exact things right, and as much as we know about this stuff, wow, right?

Allen: Keep learning, you keep learning. You have to do the research, and that’s what we’re doing, that’s the whole point of this show, to educate people. So, I think we’re opening up a lot of eyes. Let’s keep going, though.

What surprised us most was that if you have a stock, right, let’s say it’s already gone up 100%—so average was 34% before, but let’s say there’s a stock that’s gone up 100% in six months. Well, that’s overextended, right? That’s like it’s gone up too far, too fast. It’s going to go back down, right? That’s normal. The data shows the exact opposite. Stocks with the highest pre-announcement momentum—meaning they were going up the most before they were announced to be in—had the highest returns one year after they were added. The ones that were just skyrocketing continue to skyrocket the most. They, on average, made about 67%.

Matt: So objects in motion tend to stay in motion.

Allen: Yeah, they might even get faster. Very interesting. Now, rate hikes can hurt the situation. So the worst group in the entire 15-year study was in December 2021. So the stocks that were added there, there were six stocks: Lucid (which is the electric car company), Zscaler, Datadog, Airbnb, Fortinet, and Palo Alto. They were added right before the Fed started raising rates, and none of them beat the Nasdaq 100 that year. Lucid actually fell 81%. So any stock that’s making it in right now or getting in right before they start raising rates will not do that good.

Matt: I painfully know this lesson. Airbnb total down. There you go.

Allen: So even if you’re being added to the Nasdaq or an index, it doesn’t mean it’s going to keep going up, because it doesn’t protect you from the overall larger macro changes in the environment and the financial situation. It impacts everybody.

All right, so what were the best performing stocks? Well, I mean, anybody can guess. I think semiconductors, AI, it’s been going on for 15 years. And the worst ones were, I guess, they call them “story stocks.”

Matt: Yeah, they have a story behind them. Like Peloton, you know, it’s a bike. You could just see it, for the most part. It’s like, “Okay, this is all hype, it’s a story,” everyone’s like, that was not going to have staying power.

Allen: Yep. Lucid, MicroStrategy… you know, the ones that own the Bitcoin, they did not do good either after they joined the Nasdaq, because their whole thing is based on Bitcoin. If Bitcoin goes up, their stock goes up, no matter what index they’re in. That’s the only thing.

And so now the question is really: How do you find the ones that are going to go up? How do you find the ones that are going to be included? So just going through some numbers, the average six-month gain before the announcement was 34%. After they got included, I said the average was negative 0.4%, so basically they’re flat from the announcement to the inclusion. After the inclusion, in one week, the average stock is up 0.6%. So one week after inclusion ain’t really doing much. You’re thinking there’s going to be this big jump, and everybody has to buy it…

Matt: Yeah, at least a pop, right, for at least a week or so.

Allen: But the average in one week, it’s only up 1%. That’s like nothing. It could be a coin flip, up or down. I think one year after inclusion, though, the average stock was up 20%. So that’s decent one year after. But now remember, their average was up 34%, and now the average is up 20%, so they definitely have slowed down. And out of that, only 41% of these stocks that get added do better than the Nasdaq that year. So you got like a 50/50 chance of choosing which one to buy.

Matt: Yeah, is it going to beat the Nasdaq, or is it not?

Allen: So, to me, it doesn’t make sense. This strategy of, “Oh, hey, I’m going to buy it because it’s included in the Nasdaq index and it’s going to go up.” Looking at the data for the last 15 years tells you the opposite.

Matt: Yeah, not anymore.

Allen: Just because it’s being included doesn’t mean it’s going to do well. It might do good, like average was 20%, but that wasn’t better than the index itself. Those are years when Nasdaq did better than 20%. Again, we’re talking averages. Half of them were lower than the index, and half of them were above… 40/60. So you don’t know. And definitely I think now that once it’s announced, you’re too late. Like, you missed it. Now maybe after it’s included, you can wait a little bit and see if it continues to rise, and then you get back in. But I think the big jump is to figure out which one of these are going to be included, and buy it before the inclusion.

Matt: Interesting, how some people will come into this and actually start trying to short some of those ones coming in.

Allen: I don’t know that you just think about that little period, right? Or I mean, this is strictly entertainment…

Matt: Yeah, strictly entertainment, we’re just coming up with ideas.

Allen: So like, okay, you have from announcement to inclusion is about a week, right? Maybe a little bit over, but the average stock is flat. Oh, iron condor time!

Matt: Iron condor, right? You could do it!

Allen: Iron condor, like that’s the total opposite of what you would be thinking.

Matt: This is really, really telling information.

Allen: You can come up with a whole bunch of different strategies looking at this.

Matt: As I look through it, I’m like, wow.

Allen: Yeah, so the big question now is, okay, how do we make money on this? Now, we thought we were going to make money by buying it, obviously, that doesn’t pan out, so that really dashes everybody’s hopes. So we got to give them something. We got to be like, “Okay, you can’t do that, but how about this, right?” So, what would you say, how do you figure it out?

Matt: Oh, my mind’s going many different directions right now, because it opens up all these different things. But it seems to be that you would just go on the recipe that Nasdaq has made, right, that the hedge funds are following. So I would start there.

Allen: Yep. And so basically that formula is to figure out which are the top 100 largest companies. Now, profitability doesn’t matter, it’s just looking at the account size, and we talked about the other things: 5 million traded, no bankruptcy, blah blah blah. Okay, so we got to do some research, and we got to find out: out of all of the companies in Nasdaq, give me a ranking, right? I need a ranking of all the top 100, and then I need a ranking of all the rest of them, so that I can figure out which ones are going higher and which one has a chance of beating in. Because there’s overlap, right? Every month, there’s overlap. There’s a top 100, but then there’s maybe another few down here. They might go up in price and join in, and they might go up in ranking, right? So they might go, “Okay, I’m like number 106, but all of a sudden I have good earnings, and I pop up, so now I’m like 96. Oh, I’m going to be in the index.” But then I go back down again.

Matt: So then you have to be up to date with when that occurs.

Allen: Yeah, so I guess you’d make your list, and then you’d be checking it close. But you want to be in it early. You want to be in it like six months early, because they’re going to ramp up to get in there. So you don’t want to be too early, you don’t want to be too late, because otherwise you miss the big move.

Now, lucky for all of us, I guess the Nasdaq has already done some of the work for us. So, yes, you can go and get a list of every stock on the Nasdaq. But if you take a look at what’s called the Nasdaq Q50, ticker symbol NXTQ…

Matt: Okay.

Allen: This is the 50 largest Nasdaq stocks that are not in the 100. So I guess you got 1 to 100, and then you got 101 to 150, so that’s what this is. This is the next 50 candidates that, if they move higher, can take over a spot in the Nasdaq 100. So if you want to know what’s coming next, that’s the first place to start.

And then you can go to any one of these financial screeners online. Finviz is one of my favorites, FINVIZ.com. It’s free, you can do a search by market cap, and you can figure out, “Okay, who’s listed on NASDAQ, what’s their market cap?” And then we want to look at numbers 101 through probably 130 maybe, or 150. You’re basically making your candidate list, right? And then these are the ones you want to watch. You want to see how they’re doing, and if you see one starting to pick up and getting some momentum, maybe that’s time to jump in there.

And so that’s basically the game plan, right? You want to watch the calendar after that, because they have the annual re-choosing that happens in December, then they have the quarterlies. It could be anytime at the end of any quarter they could be changing it up.

Some of the things that will help you is: Does the company have a tailwind? Like what’s the story behind the company? Are they profitable? Do they have earnings or EBITDA? The more profitable a company is, the better the chance that it’s going to ramp up. Is revenue growing and getting faster? Because last year we made 20% more, this year we’re making 40% more, next year we’re going to make 100% more. Are institutions buying this stock? Are the hedge funds, are the mutual funds, are the banks buying this? We can figure that out by looking at their 13F filings. So every large hedge fund, mutual fund, and bank has to record and tell us what they own. So if you have a candidate, “Okay, I like this one particular XYZ stock, it looks good,” you can then go and research and say, “Let me look at the 13Fs, and let me see if people have it.”

Matt: You don’t have to read the whole report.

Allen: No, just look, “Okay, what did they buy? Who bought this?” And you’ll see if over time more and more institutions are buying it. You’re like, “Okay, this is picking up steam now. It’s time to get in.”

And then look at the Q50 list. Is it already on the list? If it is, it’s a good chance, or you could just go to the Q50 list itself and just pick one of those, or buy all of those, or buy the whole Q50 as an index. That’s something I would look at. Does the Q50 do better than the entire QQQs? Who knows, we’ll take a look at it.

And then the sweet spot: How has it done in the last six months? If its ranking is jumping up, then it’s more likely going to keep going and be included. If it’s gone from like 150 to 105 in six months, that’s probably going to be growing.

So, based on the data, the best time to get in on one of these stocks is from three to five months before the reference date for the annual December rebalance. So the best time to get in for December is to somewhere buy it around June, July, August. And then hopefully by December it’ll be included, so you have that whole ramp up for six months.

What to avoid: Don’t buy after the announcement. After the announcement comes out, you missed the run. You have the opportunity to wait, see how it’s doing, and then pick the best ones from there afterwards. That’s one. Number two: If it’s up more than 100% in six months, don’t buy it unless the fundamentals are really strong, because a lot of times it’s going to be a momentum shift, and then it’s going to come back down when the momentum is over. And then any unprofitable companies. Especially when rates are going up, if they’re not making money, they’re going to suffer the fastest and the most.

Matt: Sometimes the most important thing is to figure out what to avoid, right? And these are very, very telling.

Allen: Yep, and I mean, I wish I had known this earlier. I made a big case for SpaceX. “The case for SpaceX is that it’s going to be included in these indexes.” Well, maybe it doesn’t make a difference. Because SpaceX was at over 200, and right now today it’s at 157. So it’s sold off, even with “Oh, it’s going to be included in the index.” No, it doesn’t matter.

Matt: Actually dipped below the IPO, right?

Allen: Did it?

Matt: Briefly, I have to look at it, but it was briefly close to it.

Allen: Okay, so some questions that you might be thinking about that we came up with is that if the gains happen before the inclusion, why does anybody care about being added? So we talked about this. First of all, there’s $800 billion of the QQQ that needs to be invested. So all the money that comes in every month passively is now going to be put into the stock little by little. So it’s not a massive jump, but it’s sustained.

Matt: It’s required.

Allen: Yeah, so every month there’s a buyer there. That creates a floor in demand. If there’s always going to be a certain amount of buyers that are going to come in and buy this much of the stock, if there aren’t people selling it, then the stock is going to rise. Second, it’s credibility. If you’re in the Nasdaq 100, obviously you get a lot more press, you get a lot more coverage, more marketing for free, and so you might get more customers. It might be good for the company, and the executives look good too.

So when you do the scan, right, like when you’re looking at Finviz and you’re like, “Give me the top 150 companies or 200 companies on the NASDAQ,” what’s the most important thing to look for based on our research? It’s profitability. So the single biggest separator between the outperformers who did really, really good, and the underperformers, was whether they were actually generating real GAAP earnings when they were included. So, if a company is profitable, it beat the index. Unprofitable almost always failed, disappointed, did worse, or did a lot worse. So that’s probably the biggest thing to look for: profitability.

And for the new fast entry rule for SpaceX, right? A stock can be added within 15 days after an IPO. It’s going to be a little bit different because you don’t have that six-month timeframe of the stock just jumping up. So we’re gonna have to see how this affects it. This is a brand new thing that just came out because of SpaceX. I think it might be a pop for the stock. We’ll have to see. Right now, all bets are off, we don’t know.

Matt: That’s a new rule.

Allen: So it’s super, super interesting. Definitely going to change the way I invest.

Matt: Definitely an eye opener.

Allen: You know, I thought I’m going to be lazy, and I’ll just let these people do the work for me, and whenever there’s an inclusion, I’ll just buy it then, and it’ll go up. Like, no.

Matt: You’re never gonna look at this the same way.

Allen: No, I already am. I’m already like, “Okay, well, no.” I was like, “Oh man, I gotta do work now. I gotta do a scan, and I gotta keep watching them.”

Matt: It’s relatively easy to do. I mean, it’s super simple to do.

Allen: Especially now with AI, it’s super simple. You could have the AI and tell it, “Do research for me and tell me who are the top 200 stocks? Or give me stocks 101 to 200.” And then you can just set up a watch list on your brokerage platform and just look at the charts every once in a while.

Matt: Yeah, that’s that easy.

Allen: I mean, you can even tell AI, “Okay, AI, do research into all of them, tell me which ones are profitable, tell me which ones are owned by institutions, tell me the analyst ratings (which ones are buys, sells, holds), and give me all that information.” And it will go out there and do everything for you, and it’ll give you a complete list, and be like, “Here you go, this is it.” And then, based on that, you pick and choose which ones you think are going to go up. And obviously you would probably want to wait, right? Get confirmation from the price before you jump in. But again, not individual investment advice, but I think this plan is something that I’m going to be implementing.

Matt: Me as well.

Allen: Sounds pretty cool. And you get in before the pop. I don’t know, it did seem like an edge, right? It does seem like, “Okay, this could definitely be something worth manipulating, or trying to game the system to make money from it.”

Matt: It does, especially with the data backing it up.

Allen: Yeah, and so many people thinking the opposite, right? So many people thinking that, “Oh no, you just buy it.” Well, no, that’s when you sell! If you’ve ridden it up, and then they say, “Oh, hey, XYZ is going to join the NASDAQ.” Okay, that’s when you sell on that announcement. You’re like, “Okay, ride’s over, fun’s done, take your money, let’s go.”

Matt: This is a big eye opener for sure of how the process works.

Allen: Yep. So I think, those of you guys who are watching, listening, if you implement this, let me know. You know, let us know at [email protected]. Write to us or find us on social media, or whatever, and let us know if you’re doing it. It’d be really cool to see how people take this and run with it, because I’m sure there’s other ways that we have not thought of yet, you know, to make money from this.

Matt: Oh yeah, and then we can have, you know, follow-up shows about this.

Allen: Like you mentioned, shorting.

Matt: That came to my mind. I was like, “Oh, you know, there’s a period of time where you’re like, okay…”

Allen: Yeah, I mean, maybe we don’t want to short it, maybe we just want to buy puts on it, you know, so it’s like more risk defined, or whatever. And so we can still make money from it.

Matt: There’s a multitude of things that you could do, which makes it very interesting.

Allen: Yeah, I mean, you could put an iron condor on it, you could put a reverse strangle on it. I mean, there’s like a hundred billion things you could do.

Matt: Just all of a sudden you’re like, “Huh, what time frame you can do these in,” and all sorts of different things.

Allen: Yeah, once you know, “Okay, this is likely to happen,” okay, now we can build something around it.

Matt: Absolutely.

Allen: And you know, they changed like 78 stocks in 15 years. So, what is that? 78 divided by 15… five stocks a year get added, and lately they’ve had more. We just had like five stocks added this week. So on average, it’s been five stocks going in and out a year, but sometimes, like right now, markets are higher, they keep changing. And it’s a self-fulfilling prophecy. If you’re doing well as a stock and you’re going up, then more people are going to buy you, and they’ll put you in an index, which is going to make you go up even more. And if you’re doing poorly, right? If your stock is doing poorly, and that might be the strategy right there: you want to short the ones that are going to get kicked out of the Nasdaq 100. That’s another strategy, we gotta do research on that.

Matt: There you go, right. You’re reverse engineering this whole thing.

Allen: Okay, so you have a stock that’s not doing well, or maybe it’s going sideways, it’s just not growing, or it’s going down, and it’s at risk of getting kicked out. Okay, short it, because once it gets kicked out, all the ETFs and whatever have to sell it. And it’s already been going down, so there are like no buyers, right? There are no buyers left because the stock is already falling, and now you got all these people that have to sell right away. Okay, I want to do the research on that.

Matt: I know it can really take you to things you can do off of this.

Allen: Very, very interesting research. It’s like, holy cow. So that’s… yeah, I mean, if you’re listening to this, you know, listen to it two or three times. Because there’s a lot of details, a lot of data that we went through, and I’m sure just thinking about it, pondering on it, you might come onto something better, another strategy, another way to play with it. And so this one is a real… yeah, you can point to this and be like, “Okay, this is going to make money.”

Matt: I think this is an Option Genius show one for the archives.

Allen: One for the archives, everybody needs to watch this one. Yep. So this has been the first show on the new channel. Thank you all for watching. Thank you all for joining in. Make sure you subscribe to the new channel, so you get notified.

And also, we are coming up to Independence Day very soon for the country, 250 years. In anticipation of that, you know, I’ve always been like, “We should do more for Independence Day,” because it’s not just independence. It’s like, okay, independence is great for the country, right? But for us, as individuals, what would be even better is financial independence. And so I want to celebrate Financial Independence Day. So we have a bunch of really good deals coming out. It’s like Amazon has Prime Day, well, we’re having Financial Independence Day, and we’re having a lot of good promos and promotions that are coming up that will be announced to the email list. Some really cool, really, really cool stuff coming up, in addition to what we have already, so I’m excited about that.

If you have not joined the club, and you are watching, and you’re like, “Hey, this stuff is really good, I learned a lot on this show.” Well, this is a tidbit of what we share, right? There’s a lot more in the club. We’re putting this out for free on the free show, what do you think is going to be the good stuff on the paid program, right? So if you’re looking for stuff like this, we do a lot more of it in the club, and so join the club. The link is in the description.

We also have the Option Quiz. We’ve had literally thousands of people go through this already, and so much good feedback that I think every trader—even if you’re starting out or if you’re advanced—you should take the quiz. Because it’s going to give you advice and help, no matter what stage of the journey you’re on. The link is also in the description. It’s at optionquiz.com. Go to optionquiz.com, take the quiz. It’s free, takes like three minutes.

Matt: People should just go do that, because like you said, whatever level you’re on, doesn’t matter, there’s something for everybody there.

Allen: Yep, something for everybody. Looking at the markets, we’re basically at the same where we were about an hour ago, not much has changed, so we’ll see what happens going forward. And that’s it for today.

Matt: Sure, a good one, that’s definitely a good one.

Allen: Alrighty. Hey, how did Market Power do this week?

Matt: We’ve had a full array of wins, just wins across the board. So, you had a Phoenix Lotto winner…

Allen: How much was that?

Matt: That was 1575, somewhere in there.

Allen: Almost $1,600. Okay, and that’s on one contract.

Matt: Yeah, yeah, beautiful. Then we had a double dip winner yesterday, possibility you could have done two double dips.

Allen: We did have people that did it…

Matt: A few people that did actually do it, they did two double dips.

Allen: So two trades intraday. And then we had a Market Power signal yesterday out for the bell today.

Matt: For the close, that one won as well. Active and just winning across the board, doing great. It’s been a great year with Market Power.

Allen: Market Power has been phenomenal this year. This is what, trade number 29 in a row that’s won? Or 30?

Matt: Close to 30.

Allen: Yeah, and we are very close to releasing news about the automation of Market Power. So we’re basically… if you want the Market Power trades done for you in your account, we’re working with a company that is licensing the strategies from us. They have the software that connects to your brokerage account, and you know, you just have to program the strategies into their software, which we’ve already done, and then it just works. So once you connect it, you turn it on, you can watch the trades happen in your account.

Matt: Which is a wild experience.

Allen: Which is pretty cool. It’s really cool, and you don’t have to worry about the emotions, you don’t have to worry about the timing. I think this is going to be great for people who work, because we did our survey and a lot of people don’t do the Phoenix, they can’t get there in time for double dip, even though they see how much it’s winning, and so this will definitely make that available to people.

Matt: Yeah, or even if you’re across another part of the world, I mean, that’s the same thing.

Allen: Well, yeah, so right now we do not have a broker that does international accounts. We are looking at Interactive Brokers. We reached out to them, we were going to sign up with them, but they want $40,000 to do it! Like, what? Like, this is going to help your customers. You’re going to make, you know, we’re going to get more customers, more people trading, more commissions. But they’re like, “No, we want $40,000 upfront in order to set up an API.” Hey, well, you know, let me look for somebody else.

So, there’s Tastytrade, but they don’t have Canada, they don’t have Australia, they don’t have India. I know we have a lot of people in Canada that trade with us. Australia is a big market as well. We’re trying to look at that, or we’re going to look at Moomoo. I know I’ve mentioned Moomoo a couple of times, but they say that they are international. They open accounts in a lot of places, and they do have SPX index options. So we’re reaching out to them and finding out if they have all the proper connections that we need, and maybe that’ll be a way to get the international community.

But for now, we’re moving forward with Schwab as the main brokerage, and if people need others, then we can add those as well. So right now we’re looking for Schwab, and then an international, and then later on, as we get more people in, then we’ll try to get more brokerage houses. So let’s see how that goes.

Matt: Exciting times.

Allen: Yep. But yeah, so don’t buy anymore on the Nasdaq 100. Now, S&P 500 might be a different story. So we’re going to do some more research on the S&P 500 and see, is it the same thing, or is it totally different? What do you think? What’s your hypothesis?

Matt: I think there might be something there, right? You find these things out, and typically there’s a good percentage that there might be something there.

Allen: No, like what I’m saying is… we realized that Nasdaq 100 inclusion doesn’t really help the stock, right? Is it the same as the S&P 500? What do you think?

Matt: I think it’s going to be somewhat similar.

Allen: I don’t know, I think if I had to bet on it, I’d probably agree with you, but I don’t know.

Matt: Yeah, I mean I’m leaning towards the possibility, yes.

Allen: Yeah, one thing for sure, though, I would—well, not for sure, but in my opinion—I would say that companies that are added to the S&P 500 have probably not gone up 30-40% in the six months prior.

Matt: No, I don’t think so. That’s dealing with a different animal, right?

Allen: Yeah, we’re dealing with much larger companies, but I don’t know. We’ll see what happens, because any of the ones that are on the Nasdaq 100, most of them could probably be added to the S&P 500, right? Because they’re the biggest in the Nasdaq. So, S&P is 500… I don’t know, we’ll have to check it out, because it’s a lot more names, right? 500 names that you’re competing against. So we’ll see.

Matt: They’re just looking at different metrics, and it’s just a different cohort, completely different.

Allen: Yeah, cool beans. So that’s it for today’s show. Thank you everybody for watching. Please, again, subscribe to the channel. Check out the club. Check out the option quiz if you have not done so already: optionquiz.com. And then let us know in the comments or email us. Let us know what you thought about this episode. Are you going to use it somehow? Are you going to think that these guys are full of it, and the research is stupid, and we were totally off?

Matt: Or did it open your eyes, right?

Allen: Or did it open your eyes? Yeah, what did you think? So, let us know in the comments, let us know via email, and we will see you guys all on the next show, which is Friday.

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