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Making Money with Technology Stocks: Investing with QQQ

The exchange-traded fund (ETF) that has appeared most frequently in our premium member ETF reports is Invesco QQQ Trust (NASDAQ: QQQ). This fund consists of 100 of the largest non-financial companies (predominantly technology companies) that trade on the NASDAQ exchange. As of June 2019, the top 3 holdings in QQQ are Microsoft (MSFT), Amazon (AMZN) and Apple (AAPL). Although these are blue chip companies, since they are mainly technology-based, there is some decent implied volatility and therefore option premium attached to them. This article will highlight some of the 1-month initial time value returns possible using QQQ as of June 5, 2019. We will first focus in on covered call writing and then put-selling.

QQQ: 1-month call option chain

option chain

QQQ Call Options as of June 5, 2019

The brown cell show 3 out-of-the-money (OTM) strike prices and their corresponding “bid” prices.

QQQ: 1-month calculations using the Ellman Calculator

Initial 1-month time-value returns run from 1.9% to 2.2% and up to 2.7% with upside potential.

QQQ: 1-month put option chain

put option chain

QQQ Put Options as of June 5, 2019

We will calculate the 3 strikes in the lower part of the screenshot. The $170.00 strike at the top represents a possible consideration for a protective put which is outside the scope of this article.

QQQ: 1-month calculations using the BCI Put Calculator 

The percentiles circled in red represent 1-month initial time-value returns on selling these OTM cash-secured puts.

Discussion

Generating cash flow on technology-based stocks can be accomplished in a conservative yet powerful manner by selling call and put options against the Qs. Annualized initial time-value returns can easily exceed 20% or even higher when managed properly in normal to bull-market conditions.

Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:

Alan, 

We will always need you and Barry. Yet I suspect I speak for many in thanking you guys for helping me stand on my own two feet!

Jay

***Jay is a valuable contributor to our weekly blog commentary.

Upcoming events

November 2, 2019 @ 3 PM ET

Money Answers Radio Show:

I have accepted an invitation to be interviewed on this program on Monday December 2nd at 3 PM ET – 4 PM ET. I’ll provide more information as I receive it.

February 6th – 9th 2020 Orlando Money Show

3- Hour Masters Class Saturday February 8th 1:45 – 4:45 PM

BOOTH 306

Information to follow

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Market tone data is now located on page 1 of our premium member stock reports.

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Posted on November 23, 2019 by in Investment Basics, Option Trading Basics, Options Calculations, Put-selling, Stock Option Strategies

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About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.
View all posts by Alan Ellman →

20 Responses to “Making Money with Technology Stocks: Investing with QQQ”

  1. Jay November 23, 2019 11:28 am
    #

    Dear Alan and Barry,

    Reading the new blog is a staple of my Saturday morning web browsing and I enjoy reading comments through the week. Thank you guys again for all you do and for your kind mention above.

    I can’t recall a time in recent years when I did not have shares of the Q’s in my portfolio. And often I’ll have open cc’s on some and/or open csp’s to acquire more.

    As you point out it is the NASDAQ and not all tech. Last time I looked PEP (Pepsi) was a top holding. But it’s mostly Tech and that’s how folks regard it. If one wants a pure Tech play use the SPDR XLK. You do lose AMZN coverage in that one as the SPDR’s have it over in the XLY. The SPDR’s are liquid enough for our purposes but spreads are wider.

    This morning at the tail end of our last blog Terry posted a great seasonality chart. Every one please go back and check that out if you have not seen it. I hope we finish the year consistent with historical trend!

    A successful and happy Thanksgiving week to all! – Jay

  2. Herman November 23, 2019 11:34 am
    #

    Alan,

    When reading the BCI Long Term Investing Flow Chart it says, “Continue To Manage Account With Stop-Loss Order.” Can you please give me more specifics on this strategy?

    Thanks,
    Herman

    • Barry B November 23, 2019 4:15 pm
      #

      Hi Herman,

      There are a few things working here:

      – The stop-loss order refers to placing a stop-loss/contingent order to buy back your option when it hits the 20% point per the BCI rules during the first two weeks of a 4 week option month or during the first 3 weeks during a 5 week option month.
      – Similarly, with the 10% buy-back rule in the second portion of the option month.
      – The last item is that you need to be ready to exit the stock if it turns against you. While there are a number of exit rules, we like to follow the IBD rule to exit the stock when it drops 7% – 8% from your purchase price.

      There are a number of Blog articles covering these topics for further information. I hope this helps, if not, please get back to me.

      Best,

      Barry

  3. Barry B November 24, 2019 1:32 am
    #

    Premium Members,

    This week’s Weekly Stock Screen And Watch List has been uploaded to The Blue Collar Investor premium member site and is available for download in the “Reports” section. Look for the report dated 11/22/19.

    Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them at The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:

    http://www.youtube.com/user/BlueCollarInvestor

    Since we are in Earnings Season, be sure to read Alan’s article, “Constructing Your Covered Call Portfolio During Earnings Season”. You can access it at:

    https://www.thebluecollarinvestor.com/constructing-your-covered-call-portfolio-during-earnings-season/

    Best,

    Barry and The Blue Collar Investor Team

    [email protected]

  4. Julio November 24, 2019 2:11 am
    #

    Hi Alan,

    I wanted to tell you that after reading your books and watching the videos for the last month I think that I am able to do the BCI strategy myself without any help.

    I read your books several times because there are a lot of little details that you don’t catch from the first read. So I just read the books as several times. You said to paper trade for a few months but this stuff looks good so I started trading with real money and so far so good.

    I bought QQQ and I am planing to never sell it and just keep selling covered calls every month. With the indexes like SPY and QQQ I don’t worry because they always recover
    if they go down in price and in the long run they go up and covered calls just enhance the return… That’s Awesome!!!

    With individual stocks I’m just buying a few with just one option contract each until I have enough practice and feel confident and then I with increase he size of the bets with individual stocks.

    I subscribed to the Investors business daily, they have this try it for 2 months for $20 and I was watching the IBD 50 list as you say in your books.

    I bought BOOT and did OK with the covered call,
    on expiring Friday the call was in the money. I decided to buy back the option and then sell the stock because with my broker here in Canada the fees are $4.95 to buy sell the stock and the options are $10.96 but if the option gets assigned its $24.95 so if I don’t want to keep the stock I just buy the option and sell the stock Ha ha…

    Ive done research to find good optionable stocks and I think that now I need some help to find them. Besides the IBD I went to Finviz and used your stock screen suggestions but the results for the stock options were not impressive.

    I was thinking of subscribing to your Premium membership on December or January.

    Thank you.

    Julio

    • Alan Ellman November 24, 2019 7:16 am
      #

      Julio,

      Glad to learn of your recent success. A few comments:

      1. The broker commissions are too high. Check out our “Free Resources” link which contains a file of online brokers with much lower fees and accept international members trading on US exchanges:

      https://www.thebluecollarinvestor.com/free-resources/

      2. You will not need an IBD subscription if you subscribe to our premium membership. My team will do the entire screening process for you.

      3. QQQ has been the ETF most often found in our ETF Reports but it is not always out-performing the overall market so let’s give it strong consideration but also leave the door open to selling it when there are better underlying candidates.

      Alan

      • Julio December 17, 2019 10:53 am
        #

        Hi Alan,
        Thanks for the information.
        I have one contract with QQQ and was going to open a second contract but on your recent ETF report XBI is doing good and the
        option returns are better than the QQQ.

        I can but 2 contracts for XBI will a less money than one contract for QQQ
        and the return is almost twice as much for a one month option.

        I decided to leave the one QQQ contract as it is and instead of a second contract I will buy two with XBI more money!!!

        On the ETF summary you specify if they have weekly options,
        that’s for persons that would do weekly options but do you
        prefer and advise more as it says on your books that the one
        month options are better? Less commissions etc.

        I read Marios

        Analyzing 4-Day and 2-Month Trades with XBI

        Thanks

        Julio

        • Alan Ellman December 17, 2019 1:26 pm
          #

          Julio,

          Here are a few points to consider regarding your inquiries:

          1. A security that generates higher returns has higher implied volatility. We must be sure that meets our trading goals and personal risk-tolerance. For me, it’s 2% – 4% per month in normal market conditions for initial time-value profit.

          2. I believe impressive returns can be generated with both Weeklys and Monthlys. My preference is Monthlys. Better liquidity and more opportunities for exit strategies are 2 of the reasons.

          3. Commissions are less of a reason to favor Monthlys now that most online discount brokers have moved to $0 commissions for stocks and ETFs.

          Alan

  5. Anil November 24, 2019 6:23 am
    #

    Hi Alan,

    I am Anil from New Delhi, India. I am a chartered accountant by profession & I also run a stock market training institute. I have read many articles of yours & also seen your very informative videos on covered call writing. Thank you so much for sharing such valuable knowledge.

    I have a few queries which I have listed below. Shall be thankful if you could pls. provide solution

    1. I wish to buy the books authored by you from amazon for training my students. Can I distribute the original copies of those books to my students? Can I use the bought books for commercial purpose of teaching?

    2. How many books have you authored & how many are available for sale on amazon?

    3. Apart from books, do you have any other research paper / informative book / article which you can share?

    4. I had a link to your couple of video series on covered call writing but I seemed to have lost the same. Can you please share link to your valuable videos?

    5. Last & most important – I have been searching & researching on various strategies in futures & options to generate repeatable monthly income with a high degree of certainty. There are various strategies involving spreads, condors, collars etc. but the best strategy to generate monthly income with highest degree of certainty is ‘covered call writing (with married put)’. Just wanted to confirm whether in the world of futures & options, it there anything better than ‘covered call writing’ or is ‘covered call writing’ is the ultimate solution for a person looking for monthly income with certainty? Is there anything beyond & better than ‘covered call writing’ for generating monthly income with certainty?

    Many, many thanks & with high regards

    Anil

    • Alan Ellman November 24, 2019 6:51 am
      #

      Anil,

      We are so pleased to share information with our international members.

      My responses:

      1. I wish to buy the books authored by you from amazon for training my students. Can I distribute the original copies of those books to my students? Can I use the bought books for commercial purpose of teaching?

      Yes, I’m all about teaching.

      2. How many books have you authored & how many are available for sale on amazon?

      7 books:

      https://www.amazon.com/s?i=stripbooks&rh=p_27%3Aalan+ellman&s=relevanceexprank&Adv-Srch-Books-Submit.x=37&Adv-Srch-Books-Submit.y=7&unfiltered=1&ref=sr_adv_b

      Also available here:

      https://thebluecollarinvestor.com/minimembership/bci-physical-shop/

      3. Apart from books, do you have any other research paper / informative book / article which you can share?

      Huge number of related blog articles:

      https://www.thebluecollarinvestor.com/blog/

      Also, a big educational component associated with our premium membership:

      https://www.thebluecollarinvestor.com/membership/

      4. I had a link to your couple of video series on covered call writing but I seemed to have lost the same. Can you please share link to your valuable videos?

      This is the link to our beginner’s tutorial:

      https://www.thebluecollarinvestor.com/beginners-corner/

      5. Last & most important – I have been searching & researching on various strategies in futures & options to generate repeatable monthly income with a high degree of certainty. There are various strategies involving spreads, condors, collars etc. but the best strategy to generate monthly income with highest degree of certainty is ‘covered call writing (with married put)’. Just wanted to confirm whether in the world of futures & options, it there anything better than ‘covered call writing’ or is ‘covered call writing’ is the ultimate solution for a person looking for monthly income with certainty? Is there anything beyond & better than ‘covered call writing’ for generating monthly income with certainty?

      This is an opinion question so the answer depends on trading style, goals and personal risk-tolerance. For me, covered call writing has generated the highest returns in a low-risk manner. Selling cash-secured puts is extremely useful in bear and volatile market conditions.

      I want to address the word “certainty” First, these strategies are low-risk, not no-risk. We must master the 3-required skills (stock selection, option selection and position management) to mitigate these low-level risks. The (close to) “certainty” is that if the 3-required skills are mastered, we will beat the market on a consistent basis. When the market is down substantially, as it was in 2008, we can lose money and still beat the market. As an example, my portfolio was down 15% that year while the S&P 500 was down 37%. Although that year was an aberration, I want to point out that beating the market consistently is a reasonable expectation. Making money every year with rare exceptions is also reasonable.

      Please keep in touch.

      Alan

  6. Lawrence November 24, 2019 11:51 am
    #

    Article is great! However, you might want to change the expiration date in the middle option Strike: $174.50. The expiration date is 07/05/2029 at that date you should get a WHOLE lot of premium 🙂

    • Alan Ellman November 24, 2019 11:59 am
      #

      Lawrence,

      Good catch. Thanks a lot.

      Alan

  7. Alan Ellman November 26, 2019 6:53 am
    #

    Premium members,

    We have updated the “Ask Alan Video Topics” file in the “Resources/Downloads” section of the member site (right side).

    The file includes titles of all videos currently available (164 videos) plus the video topics that will be published through
    March 2020 (Ask Alan 168).

    I hope you enjoy and benefit from these educational products.

    Alan

  8. Gary November 26, 2019 2:44 pm
    #

    Alan,

    I know you’re busy but why do you send two reports where the stock screen appears to be the same each month?

    Thanks,
    Gary

    • Alan Ellman November 26, 2019 4:36 pm
      #

      Gary,

      The first report is in a traditional font. The second is published in a larger font for our members who are visually challenged.

      Alan

  9. Joseph November 26, 2019 6:58 pm
    #

    Alan,

    Is there a recommended procedure to start deciding which stocks to analyze from the Weekly Stock Screen and Watch list.

    Checking each one seems daunting and would take too much time.

    I choose several almost arbitrarily to begin my process.I’d like to include more.

    Thank you.

    Joseph (premium member)

    • Alan Ellman November 27, 2019 7:13 am
      #

      Joseph,

      All stocks in the “white cells” of our stocks reports are eligible for option-selling as long as there is adequate option liquidity (see the “OI column”). The information in our reports allow our members to populate their portfolios based on their trading style and goals. As an example, we have some members who favor stocks which dividends generate. That’s why our reports include dividend yield and ex-dates.

      Price-per-share is also discerning parameter that may eliminate some of the choices.

      One of the most popular approaches to our stocks reports is to focus in on stocks in bold (best technicals) with industry segment ranks of “A” or “B”

      Alan

  10. Alan Ellman November 27, 2019 5:50 pm
    #

    Premium members:

    This week’s 8-page report of top-performing ETFs and analysis of ALL Select Sector Components has been uploaded to your premium site. The report also lists Top-performing ETFs with Weekly options as well as the implied volatility of all eligible candidates.

    Also included is the mid-week market tone at the end of the report.

    For your convenience, here is the link to login to the premium site:

    https://www.thebluecollarinvestor.com/member/login.php

    NOT A PREMIUM MEMBER? Check out this link:

    https://www.thebluecollarinvestor.com/membership.shtml

    Happy Thanksgiving to you and your families,
    Alan and the BCI team

  11. Alan Ellman November 27, 2019 6:00 pm
    #

    Alan’s live radio show interview:

    https://moneyanswers.com/money-podcast/why-covered-call-options-may-be-your-best-investing-strategy/

    Monday December 2nd

    3 PM – 4 PM ET

    12 PM PT