The Powershares Nasdaq 100 Trust (QQQQ) is a highly liquid, very popular ETF with actively traded options. But for traders who want to implement an options strategy on the Nasdaq 100 with any precision, QQQQ may not be the optimal product.
Assume you are trading a strategy that includes the following rule:
When the 14-day Relative Strength Index (RSI) closes below 30, sell a put with a delta of -20 in the nearest cycle with at least 14 days until expiration.
We regularly…
In my last post on this topic, “Why Delta Hedging Matters,” I argued that an essential aspect of options trading is hedging away unwanted risks. For most traders, the unwanted risk is usually to directional price movement, or delta risk. We discuss this issue in the context of trading iron condors a fair amount on the members area of the site, but the principle is just as important whether you’re short one call contract or managing a book of hundreds of…
Some traders use options to speculate on the price movement of an underlying asset; other traders use options to speculate on changes in the volatility, implied or realized, of that asset. Put a little differently: while no options trader can afford to ignore the role that volatility plays in the price of a contract, not all options traders are interested exclusively or even primarily in volatility. If you’re essentially a stock picker who likes to lever up by buying puts…
Long-term Equity Anticipation Securities (LEAPS) are a class of options with expiration dates longer than a year. Their purpose is to allow investors who would otherwise hold shares of an underlying equity to buy an option instead, and thereby participate in expected price movement without tying up as much capital. However, we caution investors against using LEAPS as stock substitutes without first taking volatility considerations into account.
Let’s say you want to buy 1000 shares of Cisco Systems (CSCO). At $15.91,…
[We publish updates each weekend on the members-only areas of our site. Our comment for this weekend is below; the strike prices of our open positions have been hidden.]
The markets still seem to be in a bottoming process. Unless the S&P 500 can hold the 800 area, we see no reason to expect any major multi-week rallies. Our directional bias is down-to-sideways, and it would take a high volume, multi-month rally coincident with some positive economic news to change that thesis. …
Friday, December 11, 2009
7 Comments