The Dow and SPX keep hitting new highs. The stock market that has gone parabolic has gone even more parabolic. New retail money is coming in for Fear of Missing Out on this raging bull market. Big earnings announcements coming up with blue chip tech stock behemoths of AAPL, FB, BABA, and AMZN scheduled to report this week. Also, this week is coupled with the Federal Reserve meeting on Tuesday and Wednesday, adding to a potential doozy of a week for volatility.
My plan is to buy up weekly call options on the tech stocks that have upcoming earnings this week and try to scalp the rising implied volatility of the options. I will keep tight stops in case the stock market decides to dive. To hedge my tech stock earnings bets, I will have a Put Ratio Backspread on the QQQ or the XLK, depending on the bid/ask spreads of the At The Money options.
For Example, with Facebook trading at $190, I will look to get into some 195 and 200 calls for the February 2nd expiration. I will keep tight loss stops, and look to exit when the options get a 20 to 30% profit. I like that Facebook is trading at $190, as a powerful bullish stock like Facebook will gravitate towards pinning at the $200 mark this week. This happened to BABA last week, and is now trading at over $203 a share.
As for the QQQ hedge against a tech wreck early in the week, I will look to put on a Put Ratio Backspread. The beauty of the Put Ratio Backspread is that you can set this options strategy for a “credit”, so if QQQ also explodes to the upside, I will make money by keeping credit received.
A sample trade of a QQQ Put Ratio Backspread:
Sell 2 FEB 2018 172 Puts
Buy 3 FEB 2018 169 Puts
Credit: $84
Max Risk at Expiration: $516
If the QQQ continues its bullish run, I will make money with the credit. If the market tanks below my 169 strike, then I will make money on the trade. If I happened to keep this trade on through expiration, and it closes at the 169 strike, then I will realize the maximum risk(loss) of $516. I plan to open this or a similar trade(depends on the current stock price) on Monday morning, and close no later than Friday afternoon this week.
As a general warning, don’t invest and trade money you can’t afford to lose. Additionally, have a trade plan and execute it properly. With the markets at all time highs again and again, a trader must be cautious as a big down day could occur to counter this amazing parabolic run.