Playing the Nasdaq drop in the weekly $QQQ puts…

The Nasdaq sold down hard right from the start today, and that is a day-traders dream in weekly options.

The system I’ve been developing a system for day-trading weekly options with a mere $5K in capital on each trade on the major ETFs SPY and QQQ has its main premise discussed here:

Buying options – is it a “fool’s game”?

Today, the QQQ puts put on the show. And an almost completely incredible show it was!

The drop in the Nasdaq (the composite would close down 87 points) began on the first five-minute bar (see charts below) and quickly became a bloodbath before leveling out in the usual mid-day to the close sideways chop. At the peak of the bloodbath, the gains in the weekly puts were astonishing and even with the leveling and sideways late in the day they remained spectacular.

My main trade was in the in-the-money 157 put, expiring Friday. It peaked at 330% and closed he day up 210%. Great, great as trades go, a definite home run, but on days like today, the in-the-money is the “conservative trade.” Out of the money has possibilities beyond home runs, beyond hitting it out of ball park itself…more like hitting it clear out of town.

See the charts below: the closest out-of-the money QQQ put, the 156, peaked at up approximately 395% and closed at up about 345%; the next strike, the 155, peaked at up 844% (about $42K on a $5k trade!) and was up about 585% ($29k on the $5k) at the end of the day trade. I don’t even want to talk about the 154, the next strike’s peak and return, in which on would have to buy nearly 500 contracts at around 12 cents each.

The “approximately” and all of the “abouts” in the above paragraph are because I didn’t trade those out-of-the-money positions. I just charted them to see the “entertaining” returns (see charts below). Out-of-the money options two days before expiration are really just wild-ass gambles while in-the-money can be methodical.

Remember all of this is just a journal for me alone and presented for no more than entertainment purposes here and should not be construed in any way as trading or investing advice.

(click on the charts for a larger view)

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