- Selling weekly QQQ at the money calls is aggressive.
- Selling 38-day QQQ puts is bullish.
- Buying QQQ, selling covered calls and selling puts increases premium income and is riskier.
- All of these trades are done by income-oriented speculators.
- These trades work best on stocks with bullish momentum. QQQ's SCTR of 95.3 is very bullish and a bit over heated.
By Donald E. L. Johnson
Of the more than 60 stocks that I've owned and traded puts and calls on so far this year, these are the ones with the most bullish momentum, according to the StockCharts.com (SCTR) ratings.
SCTRs above 40 are holds or moderately bullish, SCTRs above 50 have pretty good momentum and those above sixty are considered strong buy opportunities. Anything above 90 strikes me as a bit over heated and headed for a dip. Please click on the image an zoom in for a detailed view.
I own and/or have options positions in LPX, DGX, CVS, ABR, O, NOC and WPC.
I don't have positions in these trades, but I may do one at any time.
QQQ is at about $381.23. For a speculator looking for a quick swing trade with an annualized return on risk (RoR) of about 22%, consider buying QQQ for about $381.57 and selling weekly QQQ $382 strike calls for about $1.60 a share on a 100-share options contract.
Many traders prefer to sell puts on stocks with bullish momentum. The idea is to sell, say, a 38-day QQQ $360 strike (5.67% margin of safety) puts option for 100 shares for about $3.23, or an annualized RoR of about 8%.
For traders looking for a bigger dip in the market and a better margin of safety, a more conservative trade would be to sell QQQ 10.15.21 $350 puts for about $2.34 per share. That would yield a RoR of about 5.89% and a MOS of about 8.3%.
Less risk averse and more aggressive speculators could do both a covered call trade and sell the puts. Selling covered calls is a slightly bearish trade and hedge while selling puts is a bullish trade. Selling covered calls is about the same as selling puts. Both trades are done to increase income.
Analyst's Disclosure: I/we have a beneficial long position in the shares of LPX either through stock ownership, options, or other derivatives.
Beware. I'm an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. I reserve the right to trade any of the listed stocks at any time.
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