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October QQQ, SPY Credit Call Spreads revisited
3 min read

October QQQ, SPY Credit Call Spreads revisited

October QQQ, SPY Credit Call Spreads revisited

  • Revisiting QQQ and SPY credit call spreads vs other options at the time.

The first week of September saw the first blip of broad market selling in quite some time. The conditions at the time were weird, and in hindsight even weirder, with massive upside call buying in tech and story stocks , and a bunch of long gamma having just expired in the major indices in August. (OptionsEye August 20th - Gamma Rays)

Into September 3rd, the VIX had been rising even as the the S&P 500 was making new highs. That was partly due to things starting to roll over in tech following the splits of two of the biggest story stocks, Apple and Tesla, but also all the weird gamma aspects at play.

On September 3rd we checked in on QQQ and SPY with the VIX now having gone from the low 20's to 30 while the market just a few percentage points from its highs. Here was the thinking at the time, from Sept 3rd, targeting the expected move (via Options AI), including a debit put spread and a credit call spread, when the QQQ was $289:

And some thoughts on the virtues of a credit call spread in lieu of puts:

The market is seeing in first big down day in quite some time, and with that has come a spike in implied volatility (VIX near 30). For those looking for some bearish positioning it may make sense to look at credit call spreads in lieu of puts, with breakevens on those credit call spread near recent highs
Let's start with the QQQ, which is down about 4% today. Using a bearish price target on Options AI technology with an October expiration we see one of the strategies is a -290c/+314c credit call spread, the breakeven is important here, near $300 in the underlying:

Now, with the QQQ $269, down 20 points, let's check in on the credit call spread to see how it performed versus that put and put spread.

  • The Oct -290/314 credit call spread is now trading about $2, down from $9.60 at the time. (gain of 7.60)
  • The Oct 290 put is now trading $23.25, up from $14.75 at the time. (gain of $8.50)
  • The Oct +290/-265 debit put spread is now $14.25, up from $8.25 at the time. (gain of $6)

From a sheer dollar standpoint the outright put has provided the most protection/gain but it risked about the same amount as the credit call spread with a much lower probability of profit, needing all of this move lower so far. The long put spread has performed decently, especially against the fact that it risked the least, but it hasn't had the same overall dollar gain as the others.

Now, with the market lower the 3 strategies start to change as to their potential from here. Obviously, the short call spread only has $2 of profits it can capture while the put spread still has room and the put even more. However, the credit call spread will gain those last $2 even if the market were to bounce from here but not get above $290 QQQ by Oct expiration. Whereas the put and put spread still need the market to continue lower.

All of this is interesting as a what if. The SPY credit call spread on the original post is even better versus its put brethren as vol is lower, even with the market lower.

As for what's next, here's an updated look at both the SPY and QQQ expected moves over the next month, with options pricing in about a 4.5% move for the SPY and a nearly 7% move for the QQQ:


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