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QQQQ IV Skew & Crazy Call Ratio Backspread DayTrade

|Includes: Invesco QQQ ETF (QQQ)

There are interesting ways to take a bullish stance in the Nasdaq 100 these days using call ratio backspreads. The Implied Volatility (IV) skew has resulted in higher IV for ITM calls/OTM puts and lower IV for OTM calls/ITM puts. Today I even did a daytrade in the June QQQQ options on a Call Ratio Backspread!!!

I sold 1 June 45 call and bought 3 June 52 calls per spread. I was short the 45 call at 5.44 and long (3) 52 call at .50. It was delta neutral but long gamma. For a long entry per spread  at -3.94 and then I sold the spread less than 1.5 hours latter, after the big drop in the market, for -3.75. This is a gross of 19 cents per spread before commissions (commission was about 5.7 cents round turn from interactive brokers). As a percentage of entry price this is a 4.8% return gross which was reduced to a net of about 3.3% after commissions (Oh, how I would love to own my own brokerage firm!!!)

Aside from the crazy day trading of ratio backspreads, a trader with an upside bias to the Nasdaq 100 could position themselves in December 2010 call & put options. A  trader could short the 45 put @ 1.80 and go long the 53 call @ 1.74 for a net credit to the account of 6 cents before commission. The following data was taken with the QQQQ trading at a price of approximately 49.75.


Options & Greeks from Interactive Brokers
Option Delta Gamma Vega Theta Imp. Vol.
45 put -.270 .0349 .1313 -.0065 24.27
53 call .365 .0493 .1497 -.0057 18.59


One can see that this position will only make 6 cents if the QQQQ is above 45 and below 53 for December's options expiration (before commissions). This spread starts out with a bullish bias, with a delta of about .635. The 45 strike is about 9.5% below the current price of 49.75. The 53 strike is about 6.5% above the current price. This spread position takes advantage of the IV skew that presently exists in the options markets by being short IV @ 24.27 and long IV @ 18.59. This helps negate any further drop in the Nasdaq VIX.

I came up with this position as an example for a friend who thinks the FED's money printing will keep the stock market going up. I am not as enthusiastic but if clients, or worse family (!!!), want to have long exposure these are two educational examples of how to achieve this.  Interesting thing is that call ratio backspreads can even make $ if the market drops. The following link shows an example of these spreads (I don't have any financial interest with this web site):

www.onlinetradingconcepts.com/Options/BullCallRatioBackspread2.html

P.S. The XOM call ratio backspread position is working well today with the price of the spread going from -.97 to -.79 bid / -.74 ask. Not bad after one day! See post on XOM:




Disclosure: Have option positions in QQQQ