I posted Leveraging the Bull (Part I) last December as an introduction of sorts as to what this Blog was all about, though I didn't know it at the time. As AllAllan has evolved, it has taken on a life of its own, from daytrading to highly speculative penny stocks and most recently, to market timing.
My first market timing trade was yesterday near the open, buying the June 38 QQQQ calls at $4.50 ($450.00) each. Yesterday's market decline took those calls to below $4.00 before a small come-back near the close. My average cost, after adding more at $4.00, is now $4.25. Those calls just traded at $4.70, for a gain of $0.45 each, a return of 10.5%. The underlying index is at $42.24, about $0.55 above my average entry, or about 1.3% higher.
In other words, a 1.3% gain in the underlying index has translated into a 10.5% gain in the deep-in-the-money options.
I like index options for market timing rather then futures, because options have limited risk, i.e. you cannot lose more then the cost of the position. Futures carry virtually unlimited risk, i.e. "Limit Down" day, after day, after day.
My calls are now trading at $4.90 X $5.00, a 17.6% winner.
Spot quiz, tomorrow.