Closing Out Option Trades for Triple-Digit Profits
Chris Johnson and Jon Lewis, August 21, 2009
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PowerShares QQQ Trust Trade Exit
In mid-February we identified the PowerShares QQQ Trust (QQQQ) as likely to see a significant drop. At that time, we identified the November lows as a target for the QQQQ decline. Based on this analysis, we recommended the March 30 Puts as a timely trade, given a presumed return of 100% on a drop to the November lows. Thus, our profit target of 100% was identified at the time of entry.
After some volatility in the market, this option position hit a return of 114% on March 5, triggering a closeout based on our target profit. This profit coincided with a drop in QQQQ to near its November low. Could the puts return have gone higher? Sure. But in this case, given that the monthly employment report was set to hit the tape the next day, it added an unknown variable to the trade, so we decided to walk away with triple-digit profits.
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