Honor Pi with a QQQ trade
By:Tom Preston
It’s March 14, and what does that mean? It’s Pi Day! Any day that honors pi, which undergirds the probability and option risk models that we tastytraders love, is a good day.
If you’re looking to celebrate, try our trading genius crossword puzzle. As for the market,
QQQ took a breather after hitting an all-time high last Friday. But with stable rates and slowing inflation, QQQ might be able to bounce back.
QQQ’s out-of-the-money (OTM) calls are trading over equidistant OTM puts, indicating that the market sees risk to the upside. That might be enough for a trader to consider a bullish strategy in it.
QQQ’s implied volatility (IV) ticked up earlier this week as QQQ fell, and its 19% overall IV and 23% IV rank are just high enough to make its options good candidates for short premium trades.
If you think QQQ might resume its rally in the next few weeks, the short put vertical that’s long the 433 put and short the 435 put in the April weekly expiration with 43 DTE is a bullish strategy that collects a credit 1/3 the width of its strikes, has a 77% prob of making 50% of its max potential profit before expiry, and that generates $.08 of positive daily theta.
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Tom Preston, tastylive chief market strategist, is responsible for the brokerage’s trading strategy, client-facing trading software and futures trading products. He contributes to Luckbox magazine and writes tastylive's Cherry Bomb newsletter. He's been trading options since 1992.
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