June QQQQ 38 Calls

NOTE:  This option trade was originally posted at Real Money on 6/14/2006 2:12 PM EDT; The two follow up discussions to let traders know where to exit. This was posted here chronologically (on June 17th) not as investing advice, but rather as an example of a trading call.


1. Entry:

Interesting Q Option Trade
6/14/2006 2:12 PM EDT

For speculators only: The June 38 QQQQs, which expire Friday, are now trading at a nickel by a dime.

If the Qs see a 1 point rise between now and week’s end, they should go out at about 50 cents or so.

If not, they expire worthless. Only buy what you are willing to see go to zero…

Position: Long Q calls.


2. Partial First Sell

QQQQ 38 Calls Trade
6/15/2006 11:34 AM EDT

Yesterday’s option trade — buy the Q 38 calls for a dime — has seen a nice pop along with the market.

If you want to hold some for expiry tomorrow, that’s fine — but I am a seller of half the position at 35 cents.

Bulls, bears and pigs …

Position: Long QQQQ calls, QQQQ.


3. Final Exit

Out of the Q calls
6/15/2006 3:46 PM EDT

I just let the other half of the Q calls go at 75 cents; Perhaps there
is some more upside, but that’s about as much patience as I can muster.

Thanks for the emails on this; your kind words are always appreciated.

Cody, I haven’t forgotten about you and will ge tback to you after the bell.

Position: still long QQQQs


Note: This was an absurdly successful option trade, and is extremely atypical; 90% of all optiions purchased expire worthless. It was consistent with our call tradable bottom call, and showed how agressive traders can juice a market position.

I wouldn’t expect to see this kind of an option trade again for a long long time. The Nasdaq down 8 consecutive days is a rarity, and then the out of the money calls were also so cheap, I thought it was a good risk reward trade.

This is not typical, so don’t hold your breath waiting for a repeat anytime soon.

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