We’re taking long odds on a major top here, attempting to buy Sep 30 250/270/290 put butterfly spreads. The 0.22-0.25 price range I’d suggested became increasingly inadequate as the week wore on, since a moderate decline in QQQ pushed the spread’s mid-price up to around 0.31. Continue to probe the market, being careful to avoid paying up. However, you should also consider the somewhat riskier strategy I’d outlined at the same time: legging into the spreads, first by buying 290/270 put spreads 1:1. In the Trading Room, I’d suggested bidding 0.62 initially with QQQ at 362.50, but adjusting by 0.03 deltas. This means raising your bid by a penny for each 33-cent decline in QQQ, or lowering the bid by one cent for every 33-cent rise from 362.50. To update using the same 0.03 delta adjustment, start with a 0.74-0.75 bid and QQQ at 357.29.
The second leg of the spread would entail selling 270/250 put spreads 1:1 if and when QQQ drops. Whatever we receive for them will effectively decrease the cost of the resulting butterfly dollar for dollar. If QQQ were to fall sharply after we’ve got the first leg on, we could conceivably get the price of the butterfly down to zero or lower, meaning no loss would be possible. A detailed lesson on butterfly spreads is available free to all subscribers and can be accessed via your account dashboard. Butterfly spreading is the cheapest and least risky way to leverage distant strikes. In this instance, spreads that cost you $50 to $70 apiece have the potential to widen to as much as $2000 if QQQ is at 270 when the options expire in ten weeks. Please report any fills or failed attempts in the chat room so that I can adjust the bid to suit changing conditions. _____ UPDATE (Jul 19, 6:07 p.m.): No subscriber has even mentioned QQQ in the chat room for quite a while, so this will be my last update until such time as it starts to generates some buzz. _______ UPDATE (Jul 20, 8:31 p.m.): This just in: I will be replacing QQQ with the E-Mini Nasdaq starting Sunday night. The same coordinates can be used to trade the micro-futures, a vehicle designed for those with limited means and/or small appetites for risk. ______ UPDATE (Jul 21, 10:36 p.m.): Here’s one for you Pivoteers who are comfortable on the expert slopes — a short using a ‘reverse abc’ pattern. On the 60-minute chart, start looking for a spot to plant a point ‘c’ high at 364.00. Use artificial ‘a’= 358.02 (Jul 16, 4:00 p.m.) to calculate the trigger price. _______ UPDATE (Jul 22, 4:30 p.m.): Subscribers have jumped all over the butterfly, which finally came down to our price range, so I’ll track 16 of them @ 0.24. You can try to scale in more spreads at lower prices if QQQ continues to waft toward 368.70, but don’t buy any after July 30, since might need every day of the two months that will remain for this position to come home. The spread can widen to as much as 20.00 in theory, but at the prices we’re paying, merely exiting at 8.0-10.0 could return 40 times your bet. It is a longshot, to be sure, considering we’re in the throes of the longest bull market in history, but we are getting very good odds. I’ll be tracking and updating NQ rather than QQQ henceforth, but will return to QQQ and our spreads if it plummets for a week or two.