Samwise Quick Reference Handbook
To streamline our daily blogs and conserve space, we’ve organized key resources into a convenient, collapsible dropdown menu below. A sort of Quick Reference Handbook if you will -- as our friends in aviation might call it. By clicking the menu below, you’ll have qu...
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Sam, I thought we wanted a further out exp?
So we’d be looking at Oct 3 but they’re still not released. But that’s only a handful of days beyond Sep 30.
With this trade, we can’t add too much time as we get an increased cost and it defeats the entire timing element. So we both pay up, make less and make it difficult to get the timing just right.
We want a spread that contemplates 100-days total for the rally and 25-days for the correction.
Today represents Day 72. July 31 is Day 80 and August 28 is day 100. Sep 30 is 121 days. So we get about 4-weeks + 100 day rally.
October 3 is ideal. September 30 will put us in a place where MOST of the corrections will have unfolded even if the rally were to extend to 100-days.
That’s only on THE FIRST entry by the way.
When we take our SECOND and THIRD entries, they’re probably be in October3 expirations. That’s 3 days beyond Sep 30.
But that will really depend on how much time it takes for hte pull-back to occur and for the ensuing retest to unfold. We may add to Sep 30 if it happens fast. Or even deny a week if it happens slowly.
Today’s trades are all about securing against hte possibility of the QQQ peaking on the segment, failing to retest the highs and then going into a full blown correction. It ensures we get in with at least some exposure.
For example, we could see a scenario where the QQQ peaks at $566, pulls back to the low $543’s, rebounds to $555 before then going into a full blown correction. That’s what we’re trying to insure against here. We’re also only taking a 1/3rd position so that we have room for furhther entires if the QQQ continues to climb.
Sam – are their plans to DCA the $150 NVDA puts around now too?
Possibly. We discuss it today. We may double up on the number of contracts. Not the cash allocation, but we may double our contract position.
I guess not today
We should’ve, oh well.
Price and leverage. The $530-$520 put-spread being worth only $1.30 gives us 7.6x leverage. That’s enormous leverage on what is a likely outcome.
We are likely to see the QQQ fall to $520. More likely than say $530 from $580. Yeah, it’s possible that we only get a 8% correction from $580 a share. But I don’t think that’s the likely outcome. And even if that does occur, if the QQQ drops to $530 a share at ANY point in time within a week or so ahead of expiration, those will skyrocket in value.
For example, look at the August 1 (expiring in 9-days) $565 – $555 put-spread that is just outside the money. THey’re trading at $3.22 right now. That would be a 148% returning trade at that point. And that’s if the QQQ fell to $530 within 2-weeks remaining. This Friday’s $565-$555 put-spread sits at $2.40 per contract.
So just touching $530 even with 4-days to expiration would skyrocket the spread. At $580, that would mean an 8.6% correction at ANY point in time between now and 4-days until expiration.
And notice they probably are worth even more on the downside. Meaning these prices I’m quoting above don’t consider the impact of increased volatility. IF the QQQ were dropping heavily into $565 right now, those quotes above would be higher because there would be a built in expectation that the QQQ is more likely to close into the money.
Like if the QQQ had been falling from $600 and was down $7.00 today to $565 a share, that $3.22 price would probably be closer to $3.80+ because of the trend and increased volatility. Maybe even $4.00 depending on how it all unfolded.
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Now notice this is just the first entry. Our second and third entries could be in entirely different expirations and ranges. But we do like the $1.30-$1.45 price range for the spread cost. We want something that is 8-10% out of the money because we’re trying to maximize the impact. That allows us to capitalize without allocating.