Generating Income with QQQQ Options - June 8 Update

QQQQ has settled in to the 44.00 range over the past two weeks and volatility has declined as the Euro crisis because better known and recognized. I expected this would happen and it has set up our new position nicely. First, let's recap our positions.

Two weeks ago 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 That profit is cash that can be withdrawn from the account or reinvested and is not just an unrealized gain.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 bought back the call for two reasons:

1. The June 2010 call lost almost all its value and would net a nice profit.

2. I 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. If volatility comes down, which I expect it will, or QQQQ doesn't get above 47 by September then I will make a nice cash profit on this sale also.

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            44.06

Difference        $-4.73

 

Old Call     

Sold                 0.87

Current            0.08

Profit              $0.79

 

New Call

Sold                 2.23

Current            1.48

Profit              $0.75

 

Put      

Bought              5.28

Current             7.29

Difference      $2.01

When you add all the positions together, the position is down $1,180. There are a couple of things to consider. First, the position is down only 2.4% while QQQQ has dropped by 9.7%. Second, we have generated $790 in cash. The position is generating income even as the base ETF drops. Third, the position will improve. Either QQQQ will rise in value or the Call will lose value, generating more income over time. If QQQQ continues to drop, the Put will protect us and I'll take the cash from the call and continue to sell more calls.

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

 

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

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