I have been waiting to pull the trigger on this short for sometime and with the inability to go up as of lat after the recent pop...I am ready to place my bets. I don't get much time trading my personal account but this is a simple of enough trade that I don't really have to babysit that I am willing to pull the trigger. I bought May '11 $57 puts on the QQQQ and sold some 59/60 May call spreads to partially offset some of the theta decay. I am really making two statements with these trades...first I believe that the NASDAQ is setting up for a trade lower...and second that I do not think that the highs at $59.04 will be taken out between now and May expiration.
I also believe that traders are going to start pricing in the end of QE2 soon which I think should put downward pressure on equities. Anyways I am only risking a total of $2,080, but I really am not risking that much because if the highs get taken out I will get out of the position.
I'm not exactly ready to short yet, but I am with you on thinking the highs are in, that's another reason why I wanted to get out of bonds. If there is an equities sell off, bonds typically rally, but not so sure this time given the interest rate environment. My idea for shorting the NASDAQ last time was to sell short the /NQ and buy a call spread with the long strike at the price of the highs.
ReplyDeleteIn addition to the trade above I also sold 1 240/250 April '11 call spread on Netflix. Netflix appears to have topped out around 248.88. There is only a week left on the spread and if you look at the prob of expiring it has about a 33% probability of expiring 1 penny in the money. This is confirmed by the delta of around 36 for the 240 strike April call. So I like the odds with around 70% prob of success.
ReplyDeleteI sold the call spread for $220. I especially like this trade due to the fact that earnings do not take place until the week following option expiration.
Nice, looks like you are already up quite a bit on this trade. One potential problem is the ability of this stock to make big moves in a day - a 10-$15 range in a given day is not that uncommon and you only have about a $5 cushion below your short call. TOS shows a beta of 0.477 - is that correct? I am surprised, I would have guessed it to be more volatile than the general market.
ReplyDeleteToday I was able to buy back the short 240/250 callspread on NFLX for 85 cts, booking 60% of the max profit.
ReplyDeleteSandeep,
I doubt that the beta calculated on TOS is correct. And I understand that NFLX can have large ranges and a $5 cushion is not a large range. Because of this, that is why I chose to do a call spread instead of naked calls, and also the reason I only sold 1 as opposed to my normal 5 to 10 lot trades that I normally make. I was just placing my bets but keeping it small so that it could not hurt me much if I was wrong.
Dominic
That's a really good profit in such a short period of time - nice trading.
ReplyDeleteOk, today we are getting a nice little push down on the QQQ, I bought back my ten short call spreads at 15cts to book 44% of the potential profit. And I took off half of the long 57 puts that I had for a 23% gain. I have 5 puts left, and will be holding these 5 puts for a larger move down. I think we could get a 5-7% correction. I have a target of around $54.
ReplyDeleteToday was option expiration week for the month of April. I am still holding 5 long May '11 57 puts on the QQQ. I still like this position and as long as QQQ stays below the declining trendline that I drew above the price action, I will remain in the trade.
ReplyDeleteToday we are getting move of 2% to the downside on the major indices and a pope of about 25% in the VIX. So far today we have traded as low as $55.36 on the QQQ, I know I had an initial target of $54 as of 4/12/11, but todays move has put QQQ bewlow its lower bollinger band and into oversold territory.
ReplyDeleteSo I decided to sell my remaining 5 May '11 $57 puts for $2.13 or a 57% gain. I still think there is more downside in the future, but do think I will be able to add back some long puts on a bounce maybe to $56ish. I will also be looking to use June options this time.
Overall, between the long QQQ puts, the short QQQ call spreads, and the NFLX short call spreads, I netted about $750, not a huge win but thats ok.
Given the amount you were risking it's an excellent result - congrats.
ReplyDeleteI agree, the $ amount is not important, trade size can be scaled up or down. Your original idea made sense, turned out you had great timing, the exit strategy makes sense as well. A solid trade, use a 2000-lot contract size next time though.
ReplyDeleteIf you actually look at the daily chart you will see that QQQ actually bounced pretty hard off of its lows for the day. It probably tries to retest the downsloping trendline, which on my updated chart would be around $57. I will be monitoring this ETF for my next entry...like I said above I will be looking to go out to June expiration.
ReplyDelete