Thursday, January 6, 2011

Something has got to give....using weekly options in QQQQ

Last week I posted about buying some puts on the QQQQ. We got a small downmove on the day before the holiday weeked, in which I took the opportunity to sell half of the 10 puts that I bought and sell 5 OTM puts to turn the position into a putspread to mitigate the effects of theta over the weekend. When I came into this week I no longer like the prospects of the 54/53 put spread finishing in the money and decided to close out the rest of the position for a small net loss of $20. But the more I look at the chart the more I think something has got to give. The RSI is overbought, the Bollinger bands are screaming overbought and we are heading into an important economic report tommorrow. The old saying goes buy the rumer sell the news. I think everyone is expecting the report to be a blow out. 

I really don't care what the report says, I just think the price action is overdone to the upside and tommorow might give traders an excuse to sell off into whatever news is released tomorrow.

With that said, since my timeframe is so short I decided to buy 10 56 puts using weekly options that expire tomorrow for 25cts. They are currently 8cts in the money, meaning I paid 17cts of time premium. And just for fun I bought 10 of the 55 puts as well for 4cts. I am taking a gamble with only 1 day for this thing to work, but I think it is worth it.

I will let you know how this plays out tommorow.


  1. So I may have gotten out early but I sold the 56 puts for $0.64 for a $390 or 156% gain and then I sold the 55 puts for a break even trade. Overall, I probably should not had purchased the 55 puts but they were just so cheap and vol was so low that I wanted them just in case we really had a big down day.

  2. Nice call, looking at the 30-minute chart it looks like your entry and exit were great.

  3. Wow! I had to go to a lunch about an hour before the market closed, suprised at how strong the market came back before the close. I will probably be looking at the same trade next week on Monday.Equities just feel heavy up here.

    As far as timing, I entered about 10cts below 56, and looking at the chart it looks like I was able to sell at the low of the day. So maybe my timing was lucky...but I guess that is why you have to watch.