In last week's newsletter I said “when opportunities appear to take profits, we take them and run" - this week's update in QQQ is the epitome of that statement.
$112 profit in QQQ (in 24 hours)
WBA - surprisingly, no assignment!
$112 profit in QQQ
When we got together for our live trading session this past Thursday, the CPI (inflation) numbers came in higher than expected and the market was freaking out with most indices down 2% or more. We saw the perfect opportunity in QQQ (the ETF that tracks the Nasdaq), and decided to sell a put expiring on 25 November at the $215 strike for a premium of $223. By the end of the day the market had reversed to be up 2%, and this option had already decreased in value to about $140 - meaning we were already sitting on over $80 in unrealised profits. On Friday, the market was up at the open, which was all the movement we needed to trigger our order to close the trade and lock in a profit of $112, or 50% of our max profit on the trade. Just as well, because QQQ then start to slide and ended the day down 3%. I just want to say this is absolutely not the norm - to take 50% of max profit within 24 hours - but again, when the market gives you a gift horse, you don't look it in the mouth.
Last week someone wrote to me and asked if I do any macro analysis. Here's my verbatim answer: “No, I don't really do that. It's just noise. If just doing any sort of analysis would lead people to be better traders/investors, everyone would be rich.” This trade explains it perfectly. Since inflation came in hot, the market should have tanked, but it rallied instead. I have yet to read a believable explanation as to why. (Please don't send me articles, I'm not interested!) Something I learnt pretty early on is that the sooner I realise the market is irrational and nothing makes sense (at least in the short term), the sooner I would become a better trader and investor.
Trade update: Walgreens
WBA reported earnings on Thursday as well, and the market actually liked what they had to say.
As a result, I surprisingly didn't get the assignment of 100 shares that I've been expecting for the last couple of weeks or so.
However, the stock didn't exactly rally hard, so I couldn't close my existing position either. Instead I did the next best thing and rolled the position out to November for another $92.
That moves my position to the $35 put expiring 18 November (Circle 1), and my total premium collected on this trade after 2 rolls is $233 (Circle 3). The option is currently worth $271 (Circle 2), so not quite out of the woods yet, but as I've said before I do own 200 shares of WBA, so all the premium I collect is continually lowering the cost basis of my shares. If you'd like to follow this Walgreens trade from the beginning and see how it's evolved from week to week, I've linked to the very first article when I first put on the trade below.
This article is for educational purposes only. This is my own portfolio which is being managed according to my goals and risk tolerance. Your situation is likely different and you should do your own due diligence before investing in stocks or options.