Generating Income with QQQQ Options - Update

It's been a little over two weeks since I initiated my QQQQ options position to generate income and I wanted to report on how it was doing.

It's been a little over two weeks since I initiated my QQQQ options position to generate income and I wanted to report on how it was doing. My previous article describes the position I took in detail. But to summarize, I did the following:

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.

Purchased 10 contracts of Dec 2011 Puts at $5.28

I checked on the prices today and here's how the numbers look:

Bought             48.79

Current            49.29

Difference        $0.5

 

Call     

Sold                 0.87

Current            1.07

Difference       $0.2

 

Put      

Bought              5.28

Current             5.00

Difference      $-0.28

 The overall difference is $.02. In total, the position has made $20. That's not surprising since there hasn't been much time erosion yet. If everything works well, then QQQQ will remain just under $50. The call that I sold will eventually lose value until it goes to 0. Even if QQQQ goes slightly above $50, I should be okay. The put will not lose as much value because it is a much longer duration.

If the position skyrockets above 50 then I'll have to check out values. The call and the underlying equity will cancel each other out, so I won't gain but I also won't lose. The put though will start to lose value and I'll have to decide what to do if it looks like it's going to stay underwater.

We'll cross that bridge when we get to it.

 

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

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Comments

  • Claus von Sechel

    April 29, 2010

    AMEN!, like said Larry "the liquidator" in "Other people money" movie. I don´t think that QQQQ will remain under 50 bucks, and I don´t think you are doing business with that attitude. If you have 50,000 $ to invest, you should be expecting, 400 $/month, at least.

  • Michael

    April 29, 2010

    I think Sam makes more than $400 a month as he will repeat selling QQQQ calls upon June expiration, provided that QQQQ does not go below $50.

    The risk is a margin call when QQQQ goes well down below $50

  • ABC

    May 07, 2010

    describe the position in last 2 days....

  • Sam Cass

    May 07, 2010

    Here's an update on the position as requested by ABC:

    Bought 48.79

    Current 46.57

    Difference $2.22



    Call

    Sold 0.87

    Current 0.71

    Difference $0.16


    Put

    Bought 5.28

    Current 6.10

    Difference $0.82

    Right now, the position is underwater by $1.24 per share or -$1,240. But that's okay. The $.71 call option is going to start eroding very fast and I'll begin to make more of that money back. The put is protecting my downside and has added back $.82. The increased volatility has also impacted the position, spiking the price of the Call I sold. As time erodes, even the volatility won't be able to help.

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