Generating Income with QQQQ Options - July 9 Update

Generating Income with QQQQ Options - July 9 Update

QQQQ remains in the 44 range. In the past month, the protective put has gained value and the option we sold has decayed significantly as time has passed and volatility has declined.

QQQQ remains in the 44 range. In the past month, the protective put has gained value and the option we sold has decayed significantly as time has passed and volatility has declined.

Last month before the expiration date I bought back the June 2010 calls for $.08. I originally sold them for $.87 so I netted a profit of $.79 per contract or $790. That profit is cash that can be withdrawn from the account or reinvested and is not just an unrealized gain. I also wanted to take advantage of high volatility to sell more options, which I did. I sold 10 contracts of Sept 47's at $2.23 per contract. I expected volatility to come down and it has, reducing the value of that option to $.75 today. That means I've made a profit of $1.48 per contract. Right now, it doesn't look promising that QQQQ will get back to 47 before the September expiration so I'm tempted to buy the call back, lock in my profit, and sell more calls. I may do that next week.

Here's my initial position which I took in early April:

Bought 1,000 of QQQQ at the current price of $48.79.

Sold 10 contracts of June QQQQ calls at a strike of 50 for $.87 (which I have since bought back for $.08 netting a profit of $.79 or $790.

Purchased 10 contracts of Dec 2011 Puts at $5.28 at a strike of 48.

My new position now looks like the following:

Base QQQQ ETF

Bought             48.79

Current            44.2

Difference        $-4.59

 

Old Call     

Sold                 0.87

Current            0.08

Profit              $0.79

 

New Call

Sold                 2.23

Current            0.75

Profit              $1.48

 

Put      

Bought              5.28

Current             9.30

Difference      $4.02

When you add all the positions together, the position is now up $1,700. I think that's pretty good considering QQQQ is down more than 10% since I purchased it. The position has also generated $790 in cash and will soon generate another $1,000+ if I buy back the call I sold. Now the big question is when I buy the call back and the which call I sell.

Previous Updates

Generating Income with QQQQ Covered Calls and Puts - Initial Post Describing the Position

Generating Income with QQQQ Options - Update - April 27 Position Update

Generating Income with QQQQ Options - May 13, 2010 Update

QQQQ Options Above Water and Generating Income During Market Crash - May 21 Update

Generating Income with QQQQ Options - June 8 Update

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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