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Wednesday, May 25, 2022
Derivatives Idea - $ QQQ Downside Play
* Trading in financial market carries risk and can result in loss of capital.
* This performance is only observed with historical backtests and not traded by the company.
The product and investment ideas do not consider the risk profile and financial position of the recipient and may not be suitable for everyone. Trading in financial markets and use of margin involves a significant risk of loss, which can exceed deposits. Please read the complete disclaimer carefully.
Risks & Assumptions
|$ QQQ Downside Play - Capped P & L|
|Rationale||US Nasdaq 100 index is down by 30% on a YTD basis. Previously considered unthinkable, FAANG basket stocks are down in the average range of 25% to 40%. While some are even calling the death of the multi-year tech rally, which was supported by earnings expansion and its allure as a high growth stock, chances of a more protracted downtrend in the tech stocks will likely be the number one fear scenario. The previous sentiments of buying dips is giving away to selling on any price spikes.|
|Purpose||The strategy aims to capture further downside potential in the US Tech benchmark Nasdaq 100 index. Accordingly, the max profit and loss are capped with a risk-reward of 0.415.|
|Strategy||Bear Put Ratio Spread Variant|
|Exposure Size||10 lots for all strikes|
|Contract Expiry||17th June, 2022 - Monthly Contract|
|Strike 1||88.34 % * 1 * Sell Put|
|Strike 2||97.17 % * 1 * Sell Put|
|Strike 3||100.71 % * 2 * Buy Put|
|Last Price (As of 24th May, 2022)||Exposure Size||Potential Breakeven Points||Potential Entry Debit||Potential Risk Reward||Potential Max Profit||Potential Max Loss||Potential Max Profit Curve||Potential Max Loss Curve|
|$283||10 Lots for all 3 Strikes||Below $277.86||$13.2 /Unit||0.415||$31,800||$(13,200)||Max Profit of $31,800 capped on any downside moves below $ 250||Max Loss of - $ 13,200 capped on any upside moves above $ 290|
Data Source: Bloomberg
Data & Prices as of : 24/05/2022 US Markets Open
Strategy Payoff Chart
Data Source : Excel Calculations
|$ QQQ Price||Strategy P & L|
Data Source : Excel Calculations
Risks and Assumptions for Back-tested trading strategies
Data Source: Bloomberg
Data & Prices as of: 24/05/2022 US Market Open
Arun Leslie John
Chief Market Analyst
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