For a few days the market looked destined to test its August lows, if not break below those low points. That suddenly changed this week based on news that Europe might be getting a plan together that could solidify their footing for a few years. Couple that with some end of the month “window dressing” and we have a nice rally. It might not last long, but I didn’t want to take the chance of being in a bearish position too long during a rally, so I sold my 300 shares of SDS at $23.27 and received $6979.50 after commissions. That gave me a realized loss of $875.99.
I bought this inverse ETF to balance out my SSO position I wasn’t willing to sell yet (luckily). The good news (along with not selling my SSO exposure) is that I didn’t do a good job of balancing out my risk. I was aiming for half of my position to be hedged by buying 300 shares of SDS to balance out my 600 share exposure of SSO. Soon after I bought the position it dawned on me that SSO and SDS were not equal in price, so I was closer to hedging 25% of my SSO position instead of 50%. By the time this piece of obviousness hit me I was already having buyer’s remorse, so I just let it ride until today when I decided to take the loss. I almost dumped it yesterday, but wanted to see if it was a one day, dead cat bounce. It wasn’t and the delayed sell cost me. I won’t even be surprised if we get another push lower, but I didn’t like the SDS trade anyway, so there was no reason to play the risk in either direction any longer.
With the bullish attitude still in mind, but the cautious voice barely audible in the background I moved to QLD. QLD is to QQQ what SSO is to SPY. It attempts to produce double the daily return of NASDAQ 100 Index. QLD bottomed out in the $66 range in August, but only fell back to just below $74 last week on a pretend test of the lows. With AAPL such a large part of the NASDAQ 100 I think it’ll be hard to pull it down too far without creating a fantastic buying opportunity. While QLD was trading at $82.98 I sold one QLD October $75 naked put for $2.95 and received $294.52 after commissions. This contract expires in less than four weeks and could give me a return of 4.1% or 57.4% annualized. As volatile as QLD is, it could be back below $75 as early as tomorrow, but I don’t think it will be. If it is, then I’ll be prepared to buy and hold while I write out of the money covered calls or just hold it and wait for a rebound again.
If GLD has another good day tomorrow I’ll probably buy back in quickly. I think it’s going to start moving higher steadily from here, but didn’t want to jump the gun. I’d like to be able to get in at a cheaper price than I sold it last week, but that’s just a fun game to play, not something that will actually determine when I make my trade. I don’t see it jumping $9 tomorrow (although it fell $9 in a day after I sold last week), so I should be OK with waiting another day.
Some bold moves selling that naked put on QLD. I am concerned that there could be a snapback myself, in the not so distant future. What do you foresee the NASDAQ 100 Index resting at in about 4 weeks time?
James, you might be right on the upcoming snapback, but IT is going to be hard to knock down too far too long, especially with AMZN, AAPL and GOOG taking such a large percentage of QLD.
I don’t have a real price target for the NASDAQ 100 for next month other than not down more than 4% from current levels. If that holds true I shouldn’t take a loss and will be positioned for a decent profit on anything better.