This morning, when the market opend, for a while there was an opportunity to turn a quick profit on our Bouncing Strangle strategy. I watched as the QQQQs hit a low of $43.25 this morning.
You could have sold the October $47 puts for $4.00 and then sold the October $45 calls for $.91.
Here's how the math works out.
By selling the Oct. $47 put for $4.00, you have recouped all but $.41 of your original $2.41 risk. Then, if you were to sell the Oct. $45 call for $.91, you would have a profit of $.50. A 20-contract position would have resulted in a $1,000 profit.
It doesn't sound like much, but a $.50 return on a risk of $2.41 is a profit of 20.7% return on your risk in less than a week. Pretty impressive!!
The strategy also gives you the option of hanging onto the $45 call and wait for a reversal. With only a $.41 cost basis for the remaining $45 call, the profit could be huge when the market reverses. After all, there are still six weeks left to October expiration. A lot can happen.
Just wanted to give you some food for thought and to walk you through the math of an interesting strategy.
Take care and trade smart.