Buy Monthly QQQ Options

This strategy has 2 simple rules:

  1. Every month, buy the 1 month call option on QQQ (NASDAQ ETF) that is the closest to the strike, but out of the money, UNLESS
  2. The option premium (option price / stock price) is greater than 3%, in which case don’t buy any options that month

The monthly options expire on the third Friday of the month.  So on every third Friday, this strategy says to buy an option that expires on the third Friday of the following month.

The results I’m going to show below are for options on the NASDAQ ETF, QQQ.  This is a widely traded option.

Options are only traded at discrete prices, so buying an option exactly At The Money (ATM) is usually not possible.  So this strategy says to buy the call option that’s out of the money, but closest to the QQQ price.  E.g., if the QQQ price is 48.6, and there are options for 48.5 and 49.0, the call option at 49.0 would be purchased.

Finally, if the option premium is greater than 3% of the QQQ price, this strategy says to not buy anything at all.  The reason is that, historically, ATM one month call option premiums on QQQ above 3% occur when the market is in turmoil.  This strategy says to just sit out and wait for things to calm down.

Here is the table of annual results for 2006 – 2015, I’ll explain each column below:

YearNumber Up MonthsNumber Down MonthsNumber Months OutTotal Annual Profit (Loss)
2006480-0.76%
2007750+3.04%
2008255-2.56%
2009354+2.79%
2010651+7.74%
2011381-3.99%
2012750+13.46%
2013750+13.84%
2014570+10.08%
2015480+3.06%
  • Number of Up Months: This is the number of months in the year in which an option would have been purchased, and ended up worth more than the purchase price
  • Number of Down Months: This is the number of months in the year in which an option would have been purchased, and ended up worth less than the purchase price
  • Number Months Out: This is the number of months in the year in which an option would not have been purchased because the premium was more than 3%
  • Total Annual Profit (Loss): This is the sum of the profits / losses from each individual trade over the year

The Total Annual Profit (Loss) needs a bit more explanation.  Suppose QQQ is selling for $50 per share, and the strategy is to trade options on $10,000 worth of QQQ every month.  $10,000 / $50 = 200 shares, or 2 contracts.  A Total Annual Profit (Loss) of -5% means that, at the end of the year, this strategy would lose 5% of $10,000, or $500.  Conversely, a Total Annual Profit (Loss) of +5% means that, at the end of the year, this strategy would gain 5% of $10,000, or $500.

This is an analysis of past performance, but past performance is not a guarantee of future performance.

Comments / Questions: joseph AT StockMarketMovement.com