Last updated on April 4th, 2020
QQQ is the Nasdaq ETF that we trade on a regular basis inside our Options Fast Track program (send me an email to learn more – mike@netpicks dot com).
Using our custom indicators as part of our trading approach, we focus on reversals in trends from the oversold or overbought conditions.
Our members understand that overbought or oversold does not necessarily mean instant reversals, but we are able to use Options to position regardless of what the market does.
Why We Are Trading QQQ With Options
Looking at the chart below, you can see earlier in the week that the %R indicator got above the -10 line. This indicates an overbought condition in the near term. We are looking for price to move lower from here in the coming week.
This doesn’t mean we need QQQ to fall apart but a healthy pullback for a few days will give us really great profit potential.
You will also see price breaking below the white line on the chart which is our signal line. The signal line is used to confirm price is ready to break lower. We need to see at least one candlestick close below the signal line in order for a short trade to print on the chart.
Once the signal line has a close below, you will see a series of pink dots plot on the chart for us.
Those dots represent the entry, stop, and target levels.
Having all the trade details plot on the chart removes the chance that a trader will make a mistake. At a glance, you can see exactly where price must move to in order for this trade to happen.
We currently have a short entry point printing at $170.66.
- If price gets down to touch this level we know it’s time to enter the trade.
- We can also see our 2 target levels at $169.06 and $168.61.
- The stop would be located up at $172.74.
Even though we haven’t triggered into this trade yet, we know exactly where to get in and out of the trade. This takes a tremendous amount of pressure off of our trading. We don’t need to stare at the charts all day wondering if we should take the trade or not.
The road map is there for us to follow from start to finish.
QQQ Details – Buying A Long Put
If the entry point is hit at $170.66 we will go in and buy a long put option.
We will utilize the April monthly options with 35 days left to expiration. We like to trade the in the money options as they reduce the time decay on the trade and give us a higher probability of success.
Our criteria has us looking for the put option that is 1-2 strikes in the money from the entry point on our chart.
- Once the entry is hit, the $171 puts will be the at the money puts.
- Going 2 strikes in the money from there would have us looking at the $173 puts.
- They are trading for $4.12 or $412 per contract at the moment.
These options are a little more expensive than we normally like to see but that is due to us going out 35 days with the April monthly options. The more time left to expiration, the higher priced the options will be.
I don’t mind the higher price as it gives us more time to be right on the trade without the time decay hurting us right away like we would see if we were trading the weekly options.
The price that is paid for the put option will be the most we can lose on the trade so it is a risk defined trade. As long as QQQ moves lower, like we expect it to do, the put option will increase in value.
This gives us unlimited profit potential on the trade.
The great part about this trade is it’s very different from the previous trades that we have talked about in weeks past. We have talked about selling call spreads and even an iron condor two weeks ago on HAL. Those trades are great as they give us a higher probability of success but they also leave us with a smaller profit potential.
This QQQ trade gives us a bigger profit potential as long as price moves lower quickly. It’s a great compliment to our existing trades that we have on. Using a mix of different strategies will leave us with a smoother equity curve long term.
We will track this trade going into next week to see if QQQ heads lower for us. As long as it does we will be looking at a really nice profit potential.
We have 2 trades from weeks past that were closed out this week.
The first trade that was closed out this week was a short call spread on FB. We sold the 185/190 call spread using the March monthly options. We collected $1.43 or $143 per spread on the trade. As long as price stayed below our break even point at $186.43 we made money.
This trade was closed out today for $.10 or $10 per spread. This gave us a profit of $133 per spread.
This is a great return for us considering it only tied up $357 of capital per spread to put the trade on. FB really didn’t make a big move lower for us but we didn’t need it to since we sold the spread to open the trade.
The second trade that was closed out this week was the Iron Condor that we sold on HAL two weeks ago. We sold the March monthly 47/48/44/43 Iron Condor for $.45 or $45 per spread. We closed the trade out for $.12 earlier this week which gave us a $.33 profit or $33 per spread.
This gave us another really nice profit especially considering we only used $55 of capital per spread to put the trade on. HAL didn’t do anything but chop sideways the last few weeks which is exactly what we needed to happen. We made money from a choppy sideways move which is exactly why the Iron Condor is one of my favorite strategies.
Our final open position is from last week’s trade on NFLX. It is the NFLX March 23 weekly 335/337.5 call spread that we sold. We collected $.85 or $85 per spread to put the trade on. This spread is currently trading for $.30 which means we have a $55 profit per spread at this point.
We could close the trade and book the partial profit or hold into next week to see if we can book a bigger profit. I’m going to hold this trade a little longer into next week. We are able to do this since NFLX has stayed below our short strike at $335. We will take another look at this one next week.