4/14/2021 Took a large short position in QQQ after market close at 337. Looking to hold for 2-12 trading days.

Hi everyone. I finally decided to short QQQ, but it will be a very short term swing trade. I don’t want to hold it through major earnings reports (FANG stocks), which are in two weeks.

I generally do decent with counter trend trades (shorting in uptrend). Most of my counter trend trades are losses, so although I expect to lose money on this trade as well, but if the index does move lower, it’ll make up for many small losses.

If the index is above my entry ($337) by the close this Friday, I’ll exit for a loss. I’m also out if the index consolidates sideways (closes near the same price by next Friday).

Hard stop loss is at 343 (0.8% loss to account), and profit exit is at 325.01. Risk to reward is 1 to 2. I’ve highlighted what I think are the most likely scenarios in the chart below. Green lines are preferred scenarios and red lines I get stopped out or exit for a loss manually.

QQQ daily chart below:

Enjoy the rest of your week.

5 thoughts on “4/14/2021 Took a large short position in QQQ after market close at 337. Looking to hold for 2-12 trading days.

    1. True it does make money from theta, which I like. However, the overall strategy doesn’t really fit my style, which I mentioned in my response to your other question.

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  1. Yes, selling call spreads would work, but I don’t have the options approval level to do spreads and I’ve never traded them.

    Either way, I think it’s still better to short here than to sell call spreads because of the risk/reward. The call spread risk/reward is usually less than one (max gain is less than max loss, whereas this current short position has 1 unit of risk to 2 units of reward. For example, if I sold the 345 call and bought the 350 call expiring in 10 days, I get a premium of 0.64, but my max risk is 4.46 if QQQ ends up past 350. This means I need to be right far more often than not (about 7 times correct to one time wrong to break even), which I’m not used to.

    TLDR: selling call spreads here likely works, but it doesn’t suit my trading style because I’m used to having a lower winrate (under 50%) with far larger wins than losses.

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  2. Fair, I like that you have the clarity in your head.

    I was hoping we could close the call spread the moment qqq breaks 343, but it is very possible the market might gap up 2% above i.e., ~350 (which is likely in this market) and we might take loss. However, it depends when the market does the gap up above 350 – it happens this week then the loss will not high since we have time. Happens few days before expiry losses might be high.

    I don’t usually short, so trying to understand your rationale. Thanks for everything you share. Good luck!

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