Buy QQQ Quarterly Sell SPY Quarterly Options

In this strategy, every quarter buy a three-month 1% ITM call on QQQ, and sell a three-month 1% OTM call on SPY.  For example, if QQQ and SPY were each trading for $100 per share, open the long QQQ position at $99, and open the short SPY position at $101, with both expiring on the same date three months in the future.

Since this strategy uses options on two different securities, the number of options will, in general, be different for the two securities.  The goal is to have options on the same underlying value of security.  For example, if SPY were trading at $200 per share, and QQQ were trading at $100 per share, this strategy would say to have options on twice as many shares of QQQ as on SPY.

Options are only traded at discrete values, so usually it isn’t possible to trade an option with a strike price precisely the same as the index price, or 1% above / below it.  For the long end I selected the strike price that was at least 1% ITM, and as close to 1% ITM as possible.  For the short end I selected the strike price that was at least 1% OTM, and as close to 1% OTM as possible.

Here is the table, showing the return each quarter and each year.

DateQuarterly ProfitAnnual Profit
3/18/05+1.30%
6/17/05+2.63%
9/16/05+3.40%
12/16/05-3.38%+3.95%
3/17/06+2.14%
6/16/06-1.81%
9/15/06-4.27%
12/15/06+2.18%-4.28%
3/16/07+1.02%
6/15/07+4.42%
9/21/07+2.97%
12/21/07-2.57%+5.84%
3/20/08+9.92%
6/20/08-4.93%
9/19/08-2.95%
12/19/08-2.50%-0.46%
3/20/09+6.34%
6/19/09+2.85%
9/18/09+2.22%
12/18/09+2.57%+13.97%
3/19/10-1.84%
6/18/10+1.87%
9/17/10+4.15%
12/17/10-1.56%+2.62%
3/18/11-2.00%
6/17/11+4.38%
9/16/11-1.51%
12/16/11+6.82%+7.68%
3/16/12-2.55%
6/15/12+3.24%
9/21/12-2.21%
12/21/12-3.25%-4.76%
3/15/13+1.76%
6/21/13+5.83%
9/20/13+4.06%
12/20/13+1.26%+12.91%
3/21/14-0.37%
6/20/14+6.05%
9/19/14+2.19%
12/19/14+2.82%+10.68%
3/20/15+0.67%
6/19/15-2.10%
9/18/15+2.48%
12/18/15-3.21%-2.16%
average+1.05%+4.18%
minimum-4.93%-4.76%
maximum+9.92%+13.97%

The ‘Quarterly Profit’ and ‘Annual Profit’ in the table is the percentage of the underlying asset that was made as a profit or loss.  Let me give two examples.

For 9/15/06, if SPY and QQQ were each trading for $100 per share and a position was opened on 100 shares (100 * $100 = $10,000),  the profit would have been (3.03% * $10,000) = $303.

For 12/15/06, if SPY and QQQ were each trading for $100 per share and a position was opened on 100 shares (100 * $100 = $10,000), the loss would have been (4.12% * $10,000) = -$412.

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

Comments / Questions: joseph AT StockMarketMovement.com