Can you give me some guidance on trading the QQQ? I have occasionally gone long or short depending on the market, but I find that the QQQ doesn't seem to move as much as the market does. Today I shorted the 55 Put when QQQ was at 55. I closed at the end of the day for a profit, but it was very small. Less than a point. Logically it would make sense that when the Nasdaq is plummeting, QQQ is the place to be rather than try to hit one stock. But I do not seem to get enough bang for the buck. What am I overlooking? Would I do better with the OEX? The QQQ is cheaper so I would rather put my money there, but something is wrong with the picture. Any ideas? (January 6, 2001)
The problem with the QQQ is that it has options for every point value of the index, not just every $5. Thus the deltas tend to be fairly poor unless you go well into the money. If you are used to trading on $5 option increments, however, that is not such a bad deal as you just treat it as a $5 increment and buy $5 in the money or so. But, on the triple Q's, you have to go even farther at this point in time. For example, the index closed at 56.62. The February $56 puts have a delta of -0.427; that is not going to give you much movement. The $61 puts have a delta of -0.583. You have to go all the way to the February $64 puts to get a delta over 0.70 (-0.774 on that put). At that point you get some movement, but you had to go $8 into the money to get the delta. The cost? The February $56 puts closed at 4.62 by 5. The February $61 closed at 7.38 by 7.75. The February $64 closed at 9.5 by 9.88. You pay an extra $5 (100% more) to get another 33% move in the option for each dollar the QQQ moves. But, you can get more of a gain when the index moves and get out quicker. In this market we feel that is the way to go for now.
The OEX can give you huge moves, but not as big as it used to before it was split. The options trade in $5 increments as opposed to $1 as on the QQQ. The cost is high for the options; whereas you are looking at $10 for a fairly deep in the money option on the QQQ, you are looking at over $100 for a near-term (January) option that is slightly in the money for the OEX. We play the OEX, but we do it as day trades near expiration.
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