Below is a daily chart of PowerShares QQQ ETF (QQQ), $136.75.
Trade: Under $136.60, we recommend buying 10 May $138.5 puts and selling 10 May $135 puts (16 DTE) at mid-point (currently $1.55/share).
Technical Setup: Gap down from Climactic Sell Setup.
Option Strategy: Bear Put Spread (BPS). Defined risk strategy where you make maximum profit if the stock closes below the short put strike at expiration. We buy bearish puts and then sell put strike price lower where the pattern suggests that the stock will not close under at expiry to reduce the cost of the long put and generate time decay.
The return on investment (ROI) is the Gain divided by the Debit, which is the maximum loss. The break-even is the higher strike price plus debit paid. Considered a mildly bearish strategy since we are not buying puts or shorting stock and willing to cap our gains in exchange for gain from time decay.
Stop Loss: $137.52.
Happy trading! If you have any questions or comments, please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com
All the best,
Greg Capra
Managing Director and Pristine Founder
Dan Gibby
Chief Options Strategist
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