QQQ Time Decay Spread Look Back Trade

QQQ – 6/17/2016

I entered this trade at the same time as the one above, the correct way. The mistake I made on this one was I traded with the assumption that Britain would not vote to leave the Euro. I thought the market would slowly move up, which it did but only after it took a huge fall. It moved back up to make the trade profitable but I did not make as much as I should have.

When I entered the trade QQQ was trading at $106.71. I sold the June week 4 $108.50 Calls for $0.44 and purchased the July week two 110 Calls for $0.42 to cover them. Basically it was a net zero entry which is the best way to enter these. Had the market not fallen or if I had sold a further out set of Calls I would have done very well on this one. As it was I made a little even though the market on 6/24 moved down sharply. QQQ dropped all the way to $104.92 which made both my calls virtually worthless. My June week 4 Calls expired worthless, I decided to keep my July week 3 $110.00 and wait for the market to rebound. I knew it would, I was just not sure if I had enough time to wait. Since I was not out that much money if I was wrong because of my good entry I decided to risk it.

On 7/1 with QQQ up to $108.33 I decided it was time to sell my long Calls before time decay started to move too sharply against the value of those Calls. In the end I had risked about $1,500.00 on this trade and brought in a 5.85% return in 14 days. About 150% annualized. This time, time decay had hurt me but I was still profitable even though the market did not behave like I thought it would.

Date

Sym

Action

Exp.

Stk

Price

Contracts

Type

Cost

Balance

06/17/16

QQQ

BTO

7WK2

110

-$0.44

10

Call

-$447.00

-$447.00

06/17/16

QQQ

STO

6WK4

108.5

$0.42

10

Call

$413.05

-$33.95

07/01/16

QQQ

STC

7WK2

110

$0.12

10

Call

$122.88

$88.93

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